UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

 

Filed by the Registrant Filed by a Party other than the Registrant

 

Check the appropriate box:

 

  Preliminary Proxy Statement
   
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
   
  Definitive Proxy Statement
   
  Definitive Additional Materials
   
  Soliciting Material Pursuant to §240.14a-12

 

AVALON GLOBOCARE CORP.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

  No fee required.
   
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
     
    (1)   Title of each class of securities to which transaction applies:
       

Common shares, $1.00 par value per share, of Lonlon Biotech Ltd.

         
    (2)   Aggregate number of securities to which transaction applies:
       

10,001 shares, $1.00 par value, Lonlon Biotech Ltd.

         
    (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

$0.33 per share, calculated in accordance with Rule 0-11(c)(1)(i) based on the value of the shares of Lonlon Biotech Ltd. being acquired by the registrant, who is the acquiring person, established in accordance with Rule 0-11(a)(4) for securities of issuers with an accumulated capital deficit based on one-third of the par value of such shares, or $3,333.67 in the aggregate. In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying the aggregate value calculated in the preceding sentence by $0.0001091.

         
    (4)   Proposed maximum aggregate value of transaction:
       

$3,333.67

         
    (5)   Total fee paid:
       

$0.37

   
  Fee paid previously with preliminary materials:
   
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
     
    (1)   Amount Previously Paid:
         
    (2)   Form, Schedule or Registration Statement No.:
         
    (3)   Filing Party:
         
    (4)   Date Filed:

 

Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

 

 

 

 

PRELIMINARY PROXY STATEMENT—SUBJECT TO COMPLETION

DATED JULY 15, 2021

 

AVALON GLOBOCARE CORP.

4400 Route 9 South, Suite 3100

Freehold, New Jersey 07728

 

[_], 2021

 

Dear Stockholder:

 

You are cordially invited to attend the annual meeting of stockholders of Avalon GloboCare Corp., a Delaware corporation (“Avalon” or the “Company”), which will be held at [_] on [_], 2021, beginning at [_], local time (the “annual meeting”), for the purposes detailed below, including (i) the election of our directors as described herein, (ii) the ratification of the appointment of Marcum LLP as the Company’s independent auditors for the fiscal year ending December 31, 2021 as described herein and (iii) the approval of the issuance of the shares of common stock, par value US$0.0001 per share, of Avalon (the “Avalon Common Stock”) to be issued in connection with the proposed acquisition of Lonlon Biotech Ltd., a company incorporated in the British Virgin Islands (“BVI”) (“Sen Lang”) by Avalon and the related facilitating transactions, including the Equity Financing (as defined below), pursuant to the rules of the Nasdaq Stock Market (“Nasdaq”) as described herein.

 

As previously announced, on June 13, 2021, Avalon entered into a Share Purchase Agreement (the “Purchase Agreement”), by and among the Company, Sen Lang, the holders of the share capital of Sen Lang (the “Sen Lang Shareholders”), the ultimate beneficial owners of the Sen Lang Shareholders (the “Sen Lang Beneficial Shareholders” and, together with the Sen Lang Shareholders, the “Sen Lang Owners”) and a representative of the Sen Lang Owners (the “Sen Lang Representative”). Pursuant to the Purchase Agreement, subject to the satisfaction of the conditions to closing therein, including approval by the Avalon stockholders pursuant to the rules of Nasdaq, Avalon agreed to purchase (the “Acquisition”) all of the issued and outstanding share capital of Sen Lang (the “Sen Lang Shares”). A copy of the Purchase Agreement is attached as Annex A to the accompanying proxy statement, and you are encouraged to read it in its entirety.

 

Sen Lang, through a “variable interest entity” (“VIE”) structure (described in more detail in the section of the accompanying proxy statement titled “The Acquisition—The VIE Structure”) of contractual rights held by its wholly-owned subsidiary Beijing Langlang Runfeng Biotechnology Co., Ltd., a wholly foreign owned enterprise with limited liability organized and existing under the laws of the People’s Republic of China (the “PRC”) (the “PRC Subsidiary”), has full economic benefit and management control over, and is consolidated for accounting purposes with, Senlang Biotechnology Co. Ltd., a PRC domestic company with limited liability organized and existing under the laws of the PRC (the “OpCo” or “SenlangBio”). SenlangBio is mainly engaged in the business of research and development in relation to CAR-T cell therapy, immune cell therapy and related drug development. SenlangBio is owned 100% by certain of the Sen Lang Beneficial Shareholders. A wholly-owned subsidiary of SenlangBio, Shijiazhuang Senlang Medical Laboratory Co., Ltd., a company with limited liability organized and existing under the laws of the PRC (“SenlangBio Clinical Laboratory”) is engaged in the business of testing of immunology, serology and molecular genetics specialties for patients, including hematology-tumor diagnostics and testing prior to clinical trials for cell therapy.

 

Prior to the execution of the Purchase Agreement, the Board of Directors of Avalon (the “Board”), unanimously (i) determined that the terms and provisions of the Purchase Agreement and the transactions contemplated thereby, including the Acquisition, are fair to, advisable and in the best interests of the Company and its stockholders, (ii) approved the Purchase Agreement and the transactions contemplated thereby, including the Acquisition and the issuance of the Acquisition Shares (as defined below), (iii) authorized, empowered and directed the Company to perform all of its obligations under the Purchase Agreement and the Exchange Agreement (as defined below) and related documents, and (iv) resolved to recommend the approval by the stockholders of the Company of the issuance of the Acquisition Shares in connection with the Acquisition and the issuance of the Exchange Shares (as defined below) in connection with the Exchange Agreement in compliance with the rules of Nasdaq (the “Company Board Recommendation”). Accordingly, the board recommends a vote “FOR” the proposal to approve the issuance of the Acquisition Shares in connection with the Acquisition and the issuance of the Exchange Shares in connection with the Exchange Agreement in compliance with the rules of Nasdaq and “FOR” each of the other proposals to be voted on at the annual meeting.

 

 

 

 

The purchase price being paid by Avalon to the Sen Lang Shareholders under the Purchase Agreement for the Sen Lang Shares is an aggregate of 81 million shares (the “Acquisition Shares”) of Avalon Common Stock. Ten percent (10%), or 8.1 million, of such shares will be held in escrow for 12 months following the closing to satisfy any indemnification obligations of the Sen Lang Shareholders under the Share Purchase Agreement. In addition, at the closing of the Acquisition, it is expected that Dr. Jianqiang Li, scientific founder and CSO of SenlangBio, will join the board of the Company, and Dr. Li will also be appointed as Chief Technology Officer of the Company. The Acquisition Shares will not be registered under the Securities Act of 1933, as amended (the “Securities Act”) and, therefore, will be restricted securities under Rule 144 under the Securities Act for six months or longer after the closing of the Acquisition, subject to “affiliate” status with the Company under the Securities Act.

 

In connection with the Acquisition, on June 13, 2021, an institutional investor (the “Investor”) entered into an agreement, as amended on June 24, 2021, with SenlangBio related to the purchase of registered capital of SenlangBio (the “OpCo Capital Increase Agreement”) pursuant to which the Investor will acquire an aggregate of up to 13.5% of the equity ownership of SenlangBio for an aggregate purchase price (the “Subscription Amount) of approximately US$30,000,000 (represented by an actual investment of RMB200,000,000) (the “Equity Financing”), which funds will be invested in SenlangBio in three equal installments of approximately US$10,000,000, at a fixed price, the first to be upon the closing of the Acquisition, the second to be within three months after the closing and the third to be within six months after the closing. In addition, pursuant to a Securities Exchange Agreement, as amended on June 24, 2021 (the “Exchange Agreement”), by and among the Company, Sen Lang, SenlangBio and the Investor, dated June 13, 2021, the Investor shall have the right, exercisable between the six-month and five year-anniversaries of the respective initial closing and installment closings, to elect to exchange, from time to time, all or part of its then-owned equity ownership of SenlangBio for shares (the “Exchange Shares”) of Avalon Common Stock at a fixed exchange price of US$1.21 per share of Avalon Common Stock, which was the market price of the Avalon Common Stock as of the date of the Exchange Agreement under Nasdaq rules. In addition, the Exchange Agreement provides that the Investor may only exchange up to 10% of its total investment amount in any 30 day period.

 

The proxy statement attached to this letter and the enclosed Annual Report of Avalon to stockholders for the fiscal year ended December 31, 2020, which includes the information required by Rule 14a-3 of the Securities Exchange Act of 1934, provides you with information about the proposed Acquisition and the annual meeting. I encourage you to read the entire proxy statement and accompanying Annual Report carefully.

 

At the Avalon annual meeting of stockholders, Avalon will ask its stockholders to, among other things, elect the nine director nominees named in the proxy statement to hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified, ratify the appointment of Marcum LLP as the Company’s independent auditors for the fiscal year ending December 31, 2021 and approve the issuance of the Acquisition Shares in connection with the Acquisition and the issuance of the Exchange Shares in connection with the Exchange Agreement in compliance with the rules of Nasdaq, each as described in the proxy statement.

 

Only stockholders of record at the close of business on [_], 2021, the record date for determining the stockholders entitled to notice of and to vote at the annual meeting, are entitled to notice of and to vote at the annual meeting and any adjournment thereof.

 

Your vote is very important. The Acquisition cannot be completed unless the issuances of the Acquisition Shares and the Exchange Shares are adopted by the affirmative vote of the holders of a majority of votes cast by the stockholders present in person or represented by proxy and entitled to vote thereon at the annual meeting.

 

Whether or not you are able to attend the annual meeting in person, please complete, sign and date the enclosed proxy card and return it in the envelope provided as soon as possible, or follow the instructions provided for submitting a proxy by telephone or the Internet. If you hold shares through a broker or other nominee, you should follow the procedures provided by your broker or other nominee. These actions will not limit your right to vote in person if you wish to attend the annual meeting and vote in person.

 

Thank you for your cooperation and your continued support of Avalon.

 

  Sincerely,
   
  Wenzhao “Daniel” Lu,
  Chairman of the Board of Directors

 

This proxy statement is dated [_], 2021 and is first being mailed along with the Annual Report to stockholders
on or about [_], 2021.

 

 

 

 

AVALON GLOBOCARE CORP.

4400 Route 9 South, Suite 3100

Freehold, New Jersey 07728

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON [    ], 2021

 

To the Stockholders of Avalon GloboCare Corp.:

 

NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the “annual meeting”) of Avalon GloboCare Corp., a Delaware corporation (the “Company,” “Avalon,” “we,” “our” or “us”), will be held on [    ], 2021, at [    ] [a/p.m.], Eastern time at [    ]. Only stockholders who hold shares of Avalon common stock, $0.0001 par value per share (“Avalon Common Stock”) at the close of business on [ ], 2021, the record date for the annual meeting, are entitled to vote at the annual meeting and any adjournments or postponements thereof.

 

The annual meeting is being held for the following purposes:

 

1.The “Director Election Proposal”—to elect the nine director nominees named in the proxy statement to hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified;

 

  2. The “Auditor Proposal”—to ratify the appointment of Marcum LLP as the Company’s independent auditors for the fiscal year ending December 31, 2021; and

 

  3. The “Nasdaq Proposal”—to approve, pursuant to the rules of the Nasdaq Stock Market as described herein, the issuance of (i) 81 million shares (the “Acquisition Shares”) of the common stock, par value US$0.0001 per share, of Avalon (the “Avalon Common Stock”) issuable to the holders (the “Sen Lang Shareholders”) of the share capital of Lonlon Biotech Ltd., a company incorporated in the British Virgin Islands (“BVI”) (“Sen Lang”), pursuant to the terms of the Share Purchase Agreement, dated as of June 13, 2021 (as may be amended from time to time, the “Purchase Agreement”), by and among Avalon, Sen Lang, the ultimate beneficial owners of the Sen Lang Shareholders (the “Sen Lang Beneficial Shareholders” and, together with the Sen Lang Shareholders, the “Sen Lang Owners”) and a representative of the Sen Lang Owners (the “Sen Lang Representative”), pursuant to which Avalon will acquire (the “Acquisition”) all of the issued and outstanding share capital of Sen Lang (the “Sen Lang Shares”) and (ii) shares of Avalon Common Stock (the “Exchange Shares”) issuable upon the exchange of shares of Senlang Biotechnology Co. Ltd., a PRC domestic company with limited liability organized and existing under the laws of the PRC (the “OpCo” or “SenlangBio”) to be issued to an investor in a private placement of the equity of SenlangBio (all as described in more detail herein);
     
  4. The “Adjournment Proposal”—to approve the adjournment of the annual meeting to a later date or time, if necessary, to solicit additional proxies if, based upon the tabulated vote at the time of the annual meeting, there are not sufficient votes to approve the Nasdaq Proposal.

 

After careful consideration, Avalon’s board of directors has unanimously determined that the forms, terms and provisions of the Purchase Agreement and the Exchange Agreement, including the Acquisition and the Equity Financing, are advisable and in the best interests of Avalon and its stockholders, and unanimously recommends you vote “FOR” Proposals 1 through 3, as well as the Adjournment Proposal.

 

Avalon will transact no other business at the annual meeting, except such business as may properly be brought before the annual meeting or any adjournment or postponement thereof. Please refer to the proxy statement of which this notice is a part for further information with respect to the business to be transacted at the annual meeting.

 

 

 

 

The approval of the Auditor Proposal, the Nasdaq Proposal, and the Adjournment Proposal requires the affirmative vote of the holders of a majority of votes cast by the stockholders present in person or represented by proxy and entitled to vote thereon at the annual meeting. The approval of the Director Election Proposal requires the affirmative vote of a plurality of the votes properly cast on the election of directors.

 

Completion of the Acquisition is conditioned upon, among other things, approval of the Nasdaq Proposal.

 

Your attention is directed to the proxy statement and Annual Report of Avalon to stockholders for the fiscal year ended December 31, 2020, which includes the information required by Rule 14a-3 of the Securities Exchange Act of 1934, accompanying this notice (including the financial statements and annexes attached thereto) for a more complete description of the proposed Acquisition and related transactions and each of our proposals. We encourage you to read this proxy statement and Annual Report carefully in its entirety. In particular, we urge you to read carefully the sections entitled “Risk Factors” beginning on page 18 of the accompanying proxy statement and in the Annual Report. If you have any questions or need assistance voting your shares, please call Avalon at 732-780-4400.

 

Your vote is very important, regardless of the number of shares of Avalon Common Stock that you own. Even if you plan to attend the annual meeting, we request that you complete, sign, date and return the enclosed proxy card in the envelope provided, or submit your proxy by telephone or the Internet prior to the annual meeting, and thus ensure that your shares will be represented and voted at the annual meeting if you later become unable to attend. If your shares are held in a stock brokerage account or by a bank or other nominee, please follow the instructions that you receive from your broker, bank or other nominee to vote your shares.

 

  By Order of the Board of Directors,
   
  /s/ Wenzhao “Daniel” Lu
  Wenzhao “Daniel” Lu
[   ], 2021 Chairman of the Board of Directors

 

 

 

 

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THE ACQUISITION   1
     
SUMMARY OF THE PROXY STATEMENT   9
Parties to the Acquisition   9
The Purchase Agreement   9
The Equity Financing   11
The VIE Structure   11
Interests of Certain Persons in the Acquisition   12
Reasons for the Approval of the Acquisition   12
Regulatory Approvals Required for the Acquisition   13
Accounting Treatment of the Acquisition   13
Material U.S. Federal Income Tax Consequences of the Acquisition   13
Ownership Following the Acquisition and the Equity Financing   13
     
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS   14
     
THE ANNUAL MEETING OF AVALON STOCKHOLDERS   15
The Avalon annual meeting   15
Date, Time and Place of the annual meeting   15
Purpose of the annual meeting   15
Recommendation of the Avalon Board of Directors   15
Record Date and Voting   16
Voting Your Shares   16
Who Can Answer Your Questions About Voting Your Shares   16
Quorum and Vote Required for the Proposals   16
Abstentions and Broker Non-Votes   17
Revocability of Proxies   17
Appraisal or Dissenters’ Rights   17
Solicitation of Proxies   17
RISK FACTORS   18
Risks Related to SenlangBio   18
Risks Related to the Acquisition   27
Risks Related to Avalon   34
     
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION   35
     
THE ACQUISITION   43
The Background of the Acquisition   43
Reasons for the Acquisition   44
The VIE Structure   46
Interests of Avalon’s Directors and Officers in the Acquisition   49
Regulatory Approvals Required for the Acquisition   50
Accounting Treatment of the Acquisition   50
     
THE PURCHASE AGREEMENT   51
     
THE EQUITY FINANCING   56
     
PROPOSAL NO. 1—THE DIRECTOR ELECTION PROPOSAL   57
     
PROPOSAL NO. 2—THE AUDITOR PROPOSAL   61
     
PROPOSAL NO. 3—THE NASDAQ PROPOSAL   63
     
PROPOSAL NO. 4—THE ADJOURNMENT PROPOSAL   64

 

i

 

 

INFORMATION ABOUT SENLANGBIO   65
     
SEN LANG MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   76
     
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS   91
     
INFORMATION ABOUT AVALON   94
     
AVALON’S CORPORATE GOVERNANCE AND EXECUTIVE COMPENSATION   95
     
AVALON MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   106
     
MANAGEMENT AFTER THE ACQUISITION   121
     
DESCRIPTION OF AVALON’S SECURITIES   125
     
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT   126
     
ADDITIONAL INFORMATION   127
     
WHERE YOU CAN FIND MORE INFORMATION   128
     
INDEX TO FINANCIAL STATEMENTS   F-1
     
SEN LANG FINANCIAL STATEMENTS   F-3
     
AVALON FINANCIAL STATEMENTS   F-59
     
ANNEX A: Purchase Agreement   A-1

 

ii

 

 

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THE ACQUISITION

 

The following questions and answers briefly address some commonly asked questions regarding the proposed Acquisition and about the proposals to be presented at the Avalon annual meeting of stockholders, including with respect to the proposed Acquisition. The following questions and answers may not include all the information that is important to Avalon stockholders. Stockholders are urged to read carefully this entire proxy statement, including the financial statements and annexes attached hereto and the other documents referred to herein. Except where indicated, the information in this proxy statement does not give effect to the closing of the Equity Financing described in Proposal No. 3 of this proxy statement. References in this proxy statement to “$” refer to U.S. dollars.

 

Q:Why am I receiving this proxy statement?

 

A:Avalon has furnished these materials to you by mail, in connection with the Company’s solicitation of proxies for use at the Annual Meeting of Stockholders to be held on [    ], 2021, at [ : ] [    ].m. Eastern Time. This year’s annual meeting of shareholders will be held as a virtual meeting. Stockholders attending the virtual meeting will be afforded the same rights and opportunities to participate as they would at an in-person meeting. You will be able to attend and participate in the annual meeting online via a live webcast by visiting [   ]. These materials have also been made available to you on the Internet. These materials describe the proposals on which the Company would like you to vote and also give you information on these proposals so that you can make an informed decision. We are furnishing our proxy materials on or about [    ], 2021 to all stockholders of record entitled to vote at the annual meeting.

 

In addition, on June 13, 2021, Avalon GloboCare Corp., a Delaware corporation (the “Company” or “Avalon”), entered into a Share Purchase Agreement (the “Purchase Agreement”), by and among the Company, Lonlon Biotech Ltd., a company incorporated in the British Virgin Islands (“BVI”) (“Sen Lang”), the holders of the share capital of Sen Lang (the “Sen Lang Shareholders”), the ultimate beneficial owners of the Sen Lang Shareholders (the “Sen Lang Beneficial Shareholders” and, together with the Sen Lang Shareholders, the “Sen Lang Owners”) and a representative of the Sen Lang Owners (the “Sen Lang Representative”). Pursuant to the Purchase Agreement, subject to the satisfaction of the conditions to closing therein, including approval by the Avalon stockholders pursuant to the rules of the Nasdaq Stock Market (“Nasdaq”), Avalon agreed to purchase (the “Acquisition”) all of the issued and outstanding share capital of Sen Lang (the “Sen Lang Shares”).

 

Sen Lang, through a “variable interest entity” structure (described in more detail below under “VIE Structure”) of contractual rights held by its wholly-owned subsidiary Beijing Langlang Runfeng Biotechnology Co., Ltd., a wholly foreign owned enterprise with limited liability organized and existing under the laws of the People’s Republic of China (the “PRC”) (the “PRC Subsidiary”), has full economic benefit and management control over, and is consolidated for accounting purposes with, Senlang Biotechnology Co. Ltd., a PRC domestic company with limited liability organized and existing under the laws of the PRC (the “OpCo” or “SenlangBio”). SenlangBio is mainly engaged in the business of research and development in relation to CAR-T cell therapy, immune cell therapy and related drug development. SenlangBio is owned 100% by certain of the Sen Lang Beneficial Shareholders. A wholly-owned subsidiary of SenlangBio, Shijiazhuang Senlang Medical Laboratory Co., Ltd., a company with limited liability organized and existing under the laws of the PRC (“SenlangBio Clinical Laboratory”) is engaged in the business of testing of immunology, serology and molecular genetics specialties for patients, including hematology-tumor diagnostics and testing prior to clinical trials for cell therapy. For a more detailed discussion of the business of SenlangBio and SenlangBio Clinical Laboratory, please see the section entitled “Information about SenlangBio.”

 

Prior to the execution of the Purchase Agreement, the Board of Directors of Avalon (the “Board”), unanimously (i) determined that the terms and provisions of the Purchase Agreement and the transactions contemplated thereby, including the Acquisition, are fair to, advisable and in the best interests of the Company and its stockholders, (ii) approved the Purchase Agreement and the transactions contemplated thereby, including the Acquisition and the issuance of the Acquisition Shares (as defined below), (iii) authorized, empowered and directed the Company to perform all of its obligations under the Purchase Agreement and the Exchange Agreement (as defined below) and related documents, and (iv) resolved to recommend the approval by the stockholders of the Company of the issuance of the Acquisition Shares in connection with the Acquisition and the issuance of the Exchange Shares (as defined below) in connection with the Exchange Agreement in compliance with the rules of Nasdaq (the “Company Board Recommendation”).

 

1

 

 

The purchase price being paid by Avalon to the Sen Lang Shareholders under the Purchase Agreement for the Sen Lang Shares is an aggregate of 81 million shares (the “Acquisition Shares”) of the common stock, par value US$0.0001 per share, of Avalon (the “Avalon Common Stock”). Ten percent (10%), or 8.1 million, of such shares will be held in escrow for 12 months following the closing to satisfy any indemnification obligations of the Sen Lang Shareholders under the Share Purchase Agreement. In addition, at the closing of the Acquisition, it is expected that Dr. Jianqiang Li, scientific founder and CSO of SenlangBio, will join the board of the Company, and Dr. Li will also be appointed as Chief Technology Officer of the Company. The Acquisition Shares will not be registered under the Securities Act of 1933, as amended (the “Securities Act”) and, therefore, will be restricted securities under Rule 144 under the Securities Act for six months or longer after the closing of the Acquisition, subject to “affiliate” status with the Company under the Securities Act.

 

A copy of the Purchase Agreement is attached to this proxy statement as Annex A. For a more detailed discussion of the Purchase Agreement, please see the section entitled “The Purchase Agreement.”

 

In connection with the Acquisition, on June 13, 2021, an institutional investor (the “Investor”) entered into an agreement, as amended on June 24, 2021, with SenlangBio related to the purchase of registered capital of SenlangBio (the “OpCo Capital Increase Agreement”) pursuant to which the Investor will acquire an aggregate of up to 13.5% of the equity ownership of SenlangBio for an aggregate purchase price (the “Subscription Amount) of approximately US$30,000,000 (represented by an actual investment of RMB200,000,000) (the “Equity Financing”), which funds will be invested in SenlangBio in three equal installments of approximately US$10,000,000, at a fixed price, the first to be upon the closing of the Acquisition, the second to be within three months after the closing and the third to be within six months after the closing. In addition, pursuant to a Securities Exchange Agreement, as amended on June 24, 2021 (the “Exchange Agreement”), by and among the Company, Sen Lang, SenlangBio and the Investor, dated June 13, 2021, the Investor shall have the right, exercisable between the six-month and five year-anniversaries of the respective initial closing and installment closings, to elect to exchange, from time to time, all or part of its then-owned equity ownership of SenlangBio for shares (the “Exchange Shares”) of Avalon Common Stock at a fixed exchange price of US$1.21 per share of Avalon Common Stock, which was the market price of the Avalon Common Stock as of the date of the Exchange Agreement under Nasdaq rules. In addition, the Exchange Agreement provides that the Investor may only exchange up to 10% of its total investment amount in any 30 day period.

 

This proxy statement and its annexes contain important information about the proposed Acquisition and Equity Financing and the proposals to be acted upon at the annual meeting. You should read this proxy statement and its annexes and the Annual Report, which is incorporated in its entirety into this proxy statement by reference, carefully and in their entirety.

 

Q: What is included in these materials?

 

A: These materials include:

 

this Proxy Statement for the annual meeting; and

 

the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “Annual Report”).

 

Q: What is the proxy card?

 

A: The proxy card enables you to appoint David Jin, our Chief Executive Officer, and Luisa Ingargiola, our Chief Financial Officer, as your representatives at the annual meeting. By completing and returning a proxy card, you are authorizing these individuals to vote your shares at the annual meeting in accordance with your instructions on the proxy card. This way, your shares will be voted whether or not you attend the annual meeting.

 

2

 

 

Q:What matters will stockholders consider at the Avalon annual meeting?

 

A:At the Avalon annual meeting of stockholders, Avalon will ask its stockholders to vote in favor of the following proposals (the “Avalon Proposals”):

 

Proposal 1—to elect the nine director nominees named in the proxy statement to hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified (the “Director Election Proposal”);

 

Proposal 2—to ratify the appointment of Marcum LLP as the Company’s independent auditors for the fiscal year ending December 31, 2021 (the “Auditor Proposal”); and

 

Proposal 3—to approve, pursuant to the rules of the Nasdaq Stock Market, the issuance of (i) the Acquisition Shares pursuant to the terms of the Purchase Agreement and (ii) the Exchange Shares (the “Nasdaq Proposal”);

 

Proposal 4—to adjourn the annual meeting, if necessary, to another time or place to solicit additional proxies if there are not sufficient votes in favor of Proposal 1 (the “Adjournment Proposal”).

 

Q:What will happen upon the consummation of the Acquisition and the Equity Financing?

 

A:On the date of closing of the Acquisition (the “Closing Date”), Avalon will issue the Acquisition Shares to the Sen Lang Shareholders in exchange for all of the outstanding equity of Sen Lang, and will thereby acquire the full economic benefit and management control over, and consolidate for accounting purposes with, SenlangBio. In addition, the Equity Financing will be consummated, whereby the Investor will begin to acquire up to approximately 13.5% of the equity ownership of SenlangBio for an aggregate purchase price of approximately US$30 million (represented by an actual investment of RMB200,000,000), which funds will be invested in SenlangBio in three equal installments of approximately US$10,000,000, at a fixed price, the first to be on the Closing Date, the second to be within three months after the closing and the third to be within six months after the closing.

 

Q:Why is Avalon proposing to effect the Acquisition?

 

A:Avalon believes that the post-Acquisition company will have several potential advantages, including: (i) a diverse pipeline of cell therapy product candidates, (ii) expanded footprint in China, (iii) operational synergies and (iv) an experienced management team.

 

For a more complete discussion of Avalon’s reasons for the Acquisition, please see the sections entitled “The Acquisition—Reasons for the Acquisition.

 

Q:What equity stake will current Avalon stockholders and the Sen Lang Shareholders have in Avalon after the closing of the Acquisition and prior to the consummation of the Equity Financing?

 

A:It is anticipated that, upon the consummation of the Acquisition, the ownership of Avalon will be as follows:

 

Current Avalon stockholders will own 51.0% of the total voting shares outstanding; and

 

Current Sen Lang Shareholders will own 49.0% of the total voting shares outstanding.

 

The numbers of shares and percentage interests set forth above do not take into account (i) shares of Avalon Common Stock issuable upon the exchange of shares of SenlangBio purchased by the Investor in the Equity Financing, pursuant to the Exchange Agreement, (ii) shares of Avalon Common Stock issuable upon the exercise of outstanding options and warrants and (iii) potential future issuances of Avalon securities.

 

In addition, under the Exchange Agreement, the Investor shall have the right, exercisable between the six-month and five year-anniversaries of the respective initial closing and installment closings, to elect to exchange, from time to time, all or part of its equity ownership of SenlangBio for Exchange Shares of Avalon at an effective exchange price of $1.21 per share of Avalon Common Stock. Following the completion of the financing and assuming the full funding by the investor in the financing, the aggregate number of shares of Avalon Common Stock that would be issuable under the Exchange Agreement (assuming the exchange of all shares) would be approximately 25,885,000 (using the conversion rate of US dollars to RMB of 6.3856 as of June 11, 2021). The resultant equity ownership of Avalon would be as follows:

 

Current Avalon stockholders will own 44.1% of the total voting shares outstanding;

 

Current Sen Lang Shareholders will own 42.4% of the total voting shares outstanding and

 

The Investor will own 13.5% of the total voting shares outstanding.

 

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Q:Who will be the officers and directors of the post-Acquisition company if the Acquisition is consummated?

 

A:It is currently expected that Dr. Jianqiang Li, scientific founder and CSO of SenlangBio, will join the board of Avalon, and Dr. Li will also be appointed as Chief Technology Officer of Avalon. Meng Li, Avalon’s Chief Operating Officer and a director, will resign from her position on the board of Avalon. The Avalon board and management will otherwise remain the same aside from Dr. Li, with Wenzhao Lu (Chairman), David Jin, MD, PhD, Steven A. Sanders, Yancen Lu, Wilbert J. Tauzin II, Willliam B. Stilley, III, Tevi Troy and Yue “Charles” Li continuing to serve on the board and Dr. Jin continuing to serve as President and Chief Executive Officer, Ms. Li as Chief Operating Officer and Luisa Ingargiola as Chief Financial Officer.

 

Please see the section entitled “Management After the Acquisition.”

 

Q:What is the VIE Structure?

 

A:As a part of the restructure of Sen Lang, its subsidiaries and SenlangBio and its subsidiary (collectively, the “Acquired Companies”) before the closing of the Acquisition, SenlangBio and SenlangBio Clinical Laboratory will be controlled by the PRC Subsidiary by entering into a series of variable interest entities agreements among the PRC Subsidiary, SenlangBio and all current shareholders of SenlangBio, as well as the Investor (such agreements are collectively referred to as the “VIE Agreements”, and such contractual control arrangement is referred to as the “VIE Structure”).

 

In the PRC, the VIE structure has become a popular and widely used overseas listing mode for enterprises in the sectors which are foreign investment restricted or prohibited, like the development and application of genetic diagnosis and treatment technology, which includes SenlangBio’s business. The VIE structure refers to an agreement mode in which the PRC domestic operating entity is separated from the overseas-listed entity, and the overseas-listed party/holding company controls the domestic operating entity by signing relevant agreements with the parties who would otherwise receive the benefits of ownership of SenlangBio and control its operations (i.e., VIE Agreements), and is able to consolidate the financial statements of the PRC domestic operating entity into the overseas-listed entity/holding company. After the completion of the overall VIE Structure, the interests/profits from the domestic operation, as well as operational control, have been transferred to the overseas listing/holding company.

 

It is a condition to closing under the Purchase Agreement that SenlangBio, the PRC Subsidiary and the shareholders of SenlangBio (including the Investor) execute the VIE Agreements. These VIE Agreements include (i) an exclusive technical consultation and service agreement; (ii) an exclusive purchase option agreement; (iii) an entrustment agreement of shareholders’ rights; (iv) a share pledge agreement; and (v) a spouse consent letter.

 

Q:What conditions must be satisfied to complete the Acquisition?

 

A:There are a number of closing conditions in the Purchase Agreement, including that Avalon’s stockholders approve the issuance of the Acquisition Shares and the Exchange Shares in accordance with Nasdaq rules and that Avalon consummate the Equity Financing. In addition, the VIE Agreements (as defined below) must have been executed and delivered. For a summary of the conditions that must be satisfied or waived prior to completion of the Acquisition, please see the section entitled “The Purchase Agreement—Conditions to the Closing of the Acquisition.”

 

Q:What vote is required to approve the proposals presented at the Avalon annual meeting of stockholders?

 

A:The approval of each of the Auditor Proposal, the Nasdaq Proposal, and the Adjournment Proposal requires the affirmative vote of the holders of a majority of votes cast by the stockholders present in person or represented by proxy and entitled to vote thereon at the annual meeting, and the approval of the Director Election Proposal requires the affirmative vote of a plurality of the votes properly cast on the election of directors. Accordingly, abstentions and broker non-votes, if any, will have no effect on the outcome of the Director Election Proposal, the Auditor Proposal, the Nasdaq Proposal and the Adjournment Proposal.

 

Q:How much stock is owned by 5% stockholders, directors, and executive officers?

 

A:As of June 30, 2021, Avalon’s directors and executive officers beneficially owned approximately 66.3% of the shares of Avalon Common Stock (calculated in accordance with SEC rules that define beneficial ownership) and owned 54,145,161 shares, 63.6% of the issued and outstanding Avalon Common Stock on such date. Although under no contractual or other obligation to do so, all of such directors and executive officers are currently expected to vote in favor of all of the Avalon Proposals, including the Nasdaq Proposal.

 

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Q:Are there any subsequent approvals required from the Acquired Companies’ shareholders to approve the Acquisition?

 

A:No. All of the Sen Lang Shareholders and Sen Lang Beneficial Shareholders executed the Purchase Agreement, and all of the equity of SenlangBio is owned by certain of the Sen Lang Beneficial Shareholders. Therefore, no other proceedings are necessary for the consummation of the Acquisition, other than the execution and delivery of the VIE Agreements by the Investor and the Sen Lang Beneficial Shareholders who are the owners of SenlangBio.

 

Q:How many votes do Avalon stockholders have at the annual meeting of stockholders?

 

A:Each share of Avalon Common Stock is entitled to one vote at the annual meeting for each share of Avalon Common Stock held of record as of the record date. As of the close of business on the record date, there were [  ] outstanding shares of Avalon Common Stock.

 

Q:What interests do Avalon’s current officers and directors have in the Acquisition?

 

A:Avalon’s board of directors and executive officers may have interests in the Acquisition that are different from, in addition to or in conflict with, yours.

 

As of June 30, 2021, Avalon’s directors and executive officers beneficially owned approximately 66.3% of the shares of Avalon Common Stock (calculated in accordance with SEC rules that define beneficial ownership). All of the current executive officers of Avalon will continue in their current positions after the Acquisition, and all of the directors except for Meng Li will continue on the Avalon board after the Acquisition. In addition, On April 10, 2020, in the ordinary course of business, SenlangBio entered into a scientific research project cooperation agreement with Beijing Lu Daopei Hospital Co., Ltd., under which Beijing Lu Daopei Hospital Co., Ltd. conducts scientific research for the interest of SenlangBio on the cytoplasmic CD79a antibody gated multicolor flow cytometry monitoring CD19-CAR-T bridging allogeneic transplantation for the treatment of refractory and relapsed acute B lymphocytic leukemia. SenlangBio provides research funds in the amount of RMB 2 million to Beijing Lu Daopei Hospital Co., Ltd. Beijing Lu Daopei Hospital Co., Ltd. is a wholly-owned subsidiary of an entity whose chairman is Wenzhao Lu, the Chairman and largest shareholder of Avalon.

 

For more information, please see the sections entitled “The Acquisition—Interests of Avalon’s Directors and Officers in the Acquisition.

 

Q:What are the U.S. federal income tax consequences of the Acquisition?

 

A:Neither Avalon nor its stockholders are expected to recognize federal income tax or gain as a result of the Acquisition.

 

Q:Do Avalon stockholders have appraisal rights if they object to the proposed Acquisition?

 

A:No. There are no appraisal rights available to holders of shares of Avalon Common Stock in connection with the Acquisition.

 

Q:What will happen to Avalon if, for any reason, the Acquisition does not close?

 

A:There are certain circumstances under which the Purchase Agreement may be terminated. Please see the section entitled “The Purchase Agreement—Termination of the Purchase Agreement” for information regarding the parties’ specific termination rights.

 

If, as a result of the termination of the Purchase Agreement or otherwise, Avalon is unable to complete the Acquisition by December 31, 2021 or obtain the approval to extend the deadline for Avalon to consummate the Acquisition, the Avalon board of directors may elect to, among other things, attempt to complete another strategic transaction like the Acquisition, attempt to purchase additional assets, enter into collaboration or joint venture agreements or attempt to sell or otherwise dispose of the various assets of Avalon.

 

Q:When is the Acquisition expected to be completed?

 

A:It is currently anticipated that the Acquisition will be consummated promptly following the Avalon annual meeting of stockholders, provided that all other conditions to the consummation of the Acquisition have been satisfied or waived, including consummation of the Equity Financing. For a description of the conditions to the completion of the Acquisition, please see the section entitled “The Purchase Agreement—Conditions to the Closing of the Acquisition.”

 

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Q:When and where will the annual meeting of Avalon stockholders be held?

 

A:The Avalon annual meeting will be held in a virtual meeting format only. The annual meeting will be held on [  ], 2021 at [  ] [a/p].m. Eastern time. In order to participate in the annual meeting live via the Internet, you must register at [   ] by 11:59 p.m. Eastern Time by [  ], 2021. On the day of the Avalon annual meeting, if you have properly registered, you may enter the annual meeting by logging in using the event password you received via email in your registration confirmation at [  ]. You will not be able to attend the Avalon annual meeting in-person.

 

If you are a registered holder, you must register using the virtual control number included in your proxy materials or your proxy card. If you hold your shares beneficially through a bank or broker, you must provide a legal proxy from your bank or broker during registration and you will be assigned a virtual control number in order to vote your shares during the Annual meeting. If you are unable to obtain a legal proxy to vote your shares, you will still be able to attend the Annual meeting (but will not be able to vote your shares) so long as you demonstrate proof of stock ownership. Instructions on how to connect and participate via the Internet, including how to demonstrate proof of stock ownership, are posted at [    ].

 

Q:What do I need to do now?

 

AYou are urged to carefully read and consider the information contained in this proxy statement, including the financial statements and annexes attached hereto, and in the Annual Report and to consider how the Acquisition will affect you. You should then vote as soon as possible in accordance with the instructions provided in this proxy statement on the enclosed proxy card or, if you hold your shares through a brokerage firm, bank or other nominee, on the voting instruction form provided by the broker, bank or nominee.

 

Q:How do I vote?

 

A:If you were a holder of Avalon Common Stock on [  ], 2021, the record date for the annual meeting of stockholders, you may provide your proxy instructions in one of three different ways. First, you can mail your signed proxy card in the enclosed return envelope. Second, you may provide your proxy instructions via the Internet by following the instructions on your proxy card or voting instruction form. You may also vote your shares at the annual meeting via live webcast. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the annual meeting of Avalon stockholders.

 

Q:What happens if I do not return a proxy card or otherwise provide proxy instructions, as applicable?

 

A:Signed and dated proxies received by Avalon without an indication of how the stockholder intends to vote on a proposal will be voted “FOR” each of the Avalon Proposals presented to Avalon’s stockholders in accordance with the recommendation of Avalon’s board of directors. The proxyholders may use their discretion to vote on any other matters which properly come before the Avalon annual meeting.

 

Q:May I vote in person at the annual meeting of stockholders of Avalon?

 

A:Due to the public health impact of the coronavirus outbreak (“COVID-19”) and to support the health and well-being of Avalon’s stockholders, the Avalon annual meeting will be held in a virtual meeting format only. If your shares of Avalon Common Stock are registered directly in your name with the Avalon transfer agent, you are considered to be the stockholder of record with respect to those shares, and the proxy materials and proxy card are being sent directly to you by Avalon. If you are an Avalon stockholder of record, you must register using the virtual control number included in your proxy materials or your proxy card (if you received a printed copy of the proxy materials) in order to vote at the annual meeting. If you hold your shares beneficially through a bank or broker, you are considered the beneficial owner of shares held in “street name” and you must provide a legal proxy from your bank or broker during registration and you will be assigned a virtual control number in order to vote your shares during the annual meeting. If you are unable to obtain a legal proxy to vote your shares, you will still be able to attend the annual meeting, so long as you demonstrate proof of stock ownership, but you will not be able to vote your shares. Even if you plan to attend the Avalon annual meeting live via the internet, Avalon encourages you to vote in advance by internet or mail so that your vote will be counted if you later decide not to attend the annual meeting live via the internet.

 

For more information, please see the section entitled “The Annual Meeting of Avalon Stockholders—Voting Your Shares.”

 

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Q:If my Avalon shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A:If you are a beneficial owner of shares of Avalon Common Stock and do not instruct your broker, bank, or other agent how to vote your shares, the question of whether your broker or nominee will still be able to vote your shares depends on whether the New York Stock Exchange (the “NYSE”), deems the particular proposal to be a “routine” matter and how your broker or nominee exercises any discretion they may have in the voting of the shares that you beneficially own. Brokers and nominees can use their discretion to vote “uninstructed” shares with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters. Under the rules and interpretations of the NYSE, “non-routine” matters are matters that may substantially affect the rights or privileges of stockholder, such as mergers, stockholder proposals, elections of directors (even if not contested), executive compensation (including any advisory stockholder votes on executive compensation and on the frequency of stockholder votes on executive compensation), and certain corporate governance proposals, even if management-supported.

 

For any Avalon Proposal that is considered a “routine” matter, your broker or nominee may vote your shares in its discretion either for or against the proposal even in the absence of your instruction. For any Avalon Proposal that is considered a “non-routine” matter for which you do not give your broker instructions, the shares will be treated as broker non-votes. Broker non-votes occur when a beneficial owner of shares held in street name does not give instructions to the broker or nominee holding the shares as to how to vote on matters deemed “non-routine.” Broker non-votes will not be considered to be shares “entitled to vote” at the annual meeting and will not be counted as having been voted on the applicable proposal. Avalon currently anticipates that only the Auditor Proposal is likely to be deemed routine by the NYSE.

 

Q:May I change my vote after I have submitted a proxy or provided proxy instructions?

 

A:Yes. Avalon stockholders of record may change their vote at any time before their proxy is voted at the Avalon annual meeting, as applicable, in one of the following ways:

 

filing with the Secretary of Avalon, a letter revoking the proxy;

 

submitting another signed proxy with a later date; or

 

attending the Avalon annual meeting and voting online, provided you file a written revocation with the Secretary of the Avalon annual meeting prior to the voting of such proxy.

 

Q:What is the quorum requirement for the annual meeting of stockholders?

 

A:The holders of at least a majority of the voting power of the outstanding shares of Avalon Common Stock entitled to vote, as of the record date, represented in person or by proxy, will constitute a quorum for the transaction of business at the Avalon annual meeting. Proxies marked as abstentions and broker non-votes, if any, will be included to determine the number of shares present at the annual meeting. In the absence of a quorum, a majority of Avalon’s stockholders, present in person or represented by proxy, and voting thereon will have the power to adjourn the annual meeting. As of the record date for the annual meeting, [  ] shares of Avalon Common Stock would be required to achieve a quorum.

 

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Q:What risks should I consider in deciding whether to vote in favor of the Avalon Proposals?

 

A:You should carefully review this proxy statement and the Annual Report, including the sections entitled “Risk Factors,” which set forth certain risks and uncertainties related to the Acquisition, risks and uncertainties to which the post-Acquisition company’s business will be subject, and risks and uncertainties to which each of Avalon and SenlangBio, as an independent company, is subject.

 

Q: How are proxy materials delivered to households?

 

A: Only one copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and this Proxy Statement will be delivered to an address where two or more stockholders reside with the same last name or who otherwise reasonably appear to be members of the same family based on the stockholders’ prior express or implied consent.

 

We will deliver promptly upon written or oral request a separate copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and this Proxy Statement. If you share an address with at least one other stockholder, currently receive one copy of our Annual Report on Form 10-K and Proxy Statement at your residence, and would like to receive a separate copy of our Annual Report on Form 10-K and Proxy Statement for future stockholder meetings of the Company, please specify such request in writing and send such written request to Avalon GloboCare Corp., 4400 Route 9 South, Suite 3100, Freehold, New Jersey 07728; Attention: Chief Financial Officer.

 

If you want to receive separate copies of the Company’s proxy statement and annual report in the future, or if you are receiving multiple copies and would like to receive only one copy for your household, you should contact your bank, broker or other nominee record holder, or you may contact us at Avalon’s address and telephone number.

 

Q:Who will solicit and pay the cost of soliciting proxies?

 

A:Avalon will bear all costs and expenses in connection with the solicitation of proxies, including the costs of preparing, printing and mailing this proxy statement and the Annual Report for the Avalon annual meeting.

 

Q:Who can help answer my questions?

 

A:If you are an Avalon stockholder and would like additional copies, without charge, of this proxy statement and the Annual Report, or if you have questions about the Acquisition, including the procedures for voting your shares, you should contact Avalon at:

 

Avalon GloboCare Corp.

4400 Route 9 South, Suite 3100

Freehold, New Jersey 07728

732-780-4400

 

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SUMMARY OF THE PROXY STATEMENT

 

This summary highlights selected information from this proxy statement and does not contain all of the information that is important to you. To better understand the Acquisition and the other proposals to be considered at the annual meeting, you should read this entire proxy statement carefully, including the annexes. Please see the section entitled “Where You Can Find More Information.”

 

The Annual Meeting

 

The annual meeting is being held for the following purposes:

 

1.The “Director Election Proposal”—to elect the nine director nominees named in the proxy statement to hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified;

 

2.The “Auditor Proposal”—to ratify the appointment of Marcum LLP as the Company’s independent auditors for the fiscal year ending December 31, 2021; and

 

  3. The “Nasdaq Proposal”— to approve, pursuant to the rules of the Nasdaq Stock Market, the issuance of (i) the Acquisition Shares pursuant to the terms of the Purchase Agreement and (ii) the Exchange Shares (the “Nasdaq Proposal”);
     
  4. The “Adjournment Proposal”—to approve the adjournment of the annual meeting to a later date or time, if necessary, to solicit additional proxies if, based upon the tabulated vote at the time of the annual meeting, there are not sufficient votes to approve the Nasdaq Proposal.

 

Parties to the Acquisition

 

Avalon

 

Avalon GloboCare Corp. is a clinical-stage, vertically integrated, leading CellTech bio-developer dedicated to advancing and empowering innovative, transformative immune effector cell therapy, exosome technology, as well as COVID-19 related diagnostics and therapeutics. Avalon also provides strategic advisory and outsourcing services to facilitate and enhance its clients' growth and development, as well as competitiveness in healthcare and CellTech industry markets. Through its subsidiary structure with unique integration of verticals from innovative R&D to automated bioproduction and accelerated clinical development, Avalon is establishing a leading role in the fields of cellular immunotherapy (including CAR-T/NK), exosome technology (ACTEX™), and regenerative therapeutics.

 

The principal executive offices of Avalon are located at 4400 Route 9 South, Suite 3100, Freehold, New Jersey 07728, and its telephone number is (732) 780-4400.

 

SenlangBio

 

SenlangBio is a clinical-stage biotechnology company that focuses on three advanced technology platforms—CAR T-cells, CAR γδT-cells and armTILs—to develop a robust pipeline of innovative and transformative cellular immunotherapies for cancer patients. Chimeric antigen receptor (CAR) T-cells (CAR-T) are natural cell-killing T-cells that have been engineered to specifically recognize and kill cancerous cells. Allogeneic (universal) CAR γδT-cells (CAR-GDT) are a specific class of donor-derived T-cells that can provide superior anti-tumor effectiveness. Armored tumor infiltrating lymphocytes (armTILs) are cancer-killing T-cells that provide a unique “personalized” cellular immunotherapy approach. 

 

SenlangBio is currently the largest cell therapy company in Northern China in terms of the scale of bio-manufacturing, as well as the breadth and depth of active pre-clinical research and clinical development programs.

 

A wholly-owned subsidiary of SenlangBio, Shijiazhuang Senlang Medical Laboratory Co., Ltd., a company with limited liability organized and existing under the laws of the PRC (“SenlangBio Clinical Laboratory”) is engaged in the business of testing of immunology, serology and molecular genetics specialties for patients, including hematology-tumor diagnostics and testing prior to clinical trials for cell therapy.

 

The principal executive offices of SenlangBio are located at Room 512 and 513, Building 1, 136 Yellow River Avenue, Shijiazhuang High-tech Development Zone, Hebei Province, China, and its telephone number is +86-311-82970975.

 

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Sen Lang

 

Lonlon Biotech Ltd., a company incorporated in the British Virgin Islands (“BVI”) (“Sen Lang”), the ultimate beneficial owner and controlling entity of SenlangBio through the VIE Structure, was established on October 15, 2020 to be a holding company of Lonlon Biotech Investment Limited (“Senlang HK”), which owns 100% of the equity of Beijing Langlang Runfeng Biotechnology Co., Ltd., a wholly foreign owned enterprise with limited liability organized and existing under the laws of the PRC (the “PRC Subsidiary”), and the PRC Subsidiary is the beneficiary of SenlangBio through the VIE Structure.

 

The principal executive offices of Sen Lang are located at 5F, Huabin Center, Jianguomen Wai Ave, Chaoyang District, Beijing, China, 100022.

 

The Purchase Agreement

 

On June 13, 2021, Avalon GloboCare Corp., a Delaware corporation (the “Company” or “Avalon”), entered into a Share Purchase Agreement (the “Purchase Agreement”), by and among the Company, Lonlon Biotech Ltd., a company incorporated in the British Virgin Islands (“BVI”) (“Sen Lang”), the holders of the share capital of Sen Lang (the “Sen Lang Shareholders”), the ultimate beneficial owners of the Sen Lang Shareholders (the “Sen Lang Beneficial Shareholders” and, together with the Sen Lang Shareholders, the “Sen Lang Owners”) and a representative of the Sen Lang Owners (the “Sen Lang Representative”). Pursuant to the Purchase Agreement, subject to the satisfaction of the conditions to closing therein, including approval by the Avalon stockholders pursuant to the rules of the Nasdaq Stock Market (“Nasdaq”), Avalon agreed to purchase (the “Acquisition”) all of the issued and outstanding share capital of Sen Lang (the “Sen Lang Shares”).

 

Sen Lang, through a “variable interest entity” structure (described in more detail below under “VIE Structure”) of contractual rights held by its wholly-owned subsidiary Beijing Langlang Runfeng Biotechnology Co., Ltd., a wholly foreign owned enterprise with limited liability organized and existing under the laws of the People’s Republic of China (the “PRC”) (the “PRC Subsidiary”), has full economic benefit and management control over, and is consolidated for accounting purposes with, Senlang Biotechnology Co. Ltd., a PRC domestic company with limited liability organized and existing under the laws of the PRC (the “OpCo” or “SenlangBio”). SenlangBio is mainly engaged in the business of research and development in relation to CAR-T cell therapy, immune cell therapy and related drug development. SenlangBio is owned 100% by certain of the Sen Lang Beneficial Shareholders. A wholly-owned subsidiary of SenlangBio, Shijiazhuang Senlang Medical Laboratory Co., Ltd., a company with limited liability organized and existing under the laws of the PRC (“SenlangBio Clinical Laboratory”) is engaged in the business of testing of immunology, serology and molecular genetics specialties for patients, including hematology-tumor diagnostics and testing prior to clinical trials for cell therapy. For a more detailed discussion of the business of SenlangBio and SenlangBio Clinical Laboratory, please see the section entitled “Information about SenlangBio.”

 

The purchase price being paid by Avalon to the Sen Lang Shareholders under the Purchase Agreement for the Sen Lang Shares is an aggregate of 81 million shares (the “Acquisition Shares”) of the common stock, par value US$0.0001 per share, of Avalon (the “Avalon Common Stock”). Ten percent (10%), or 8.1 million, of such shares will be held in escrow for 12 months following the closing to satisfy any indemnification obligations of the Sen Lang Shareholders under the Share Purchase Agreement. In addition, at the closing of the Acquisition, it is expected that Dr. Jianqiang Li, scientific founder and CSO of SenlangBio, will join the board of the Company, and Dr. Li will also be appointed as Chief Technology Officer of the Company. The Acquisition Shares will not be registered under the Securities Act of 1933, as amended (the “Securities Act”) and, therefore, will be restricted securities under Rule 144 under the Securities Act for six months or longer after the closing of the Acquisition, subject to “affiliate” status with the Company under the Securities Act.

 

A copy of the Purchase Agreement is attached to this proxy statement as Annex A. For a more detailed discussion of the Purchase Agreement, please see the section entitled “The Purchase Agreement.”

 

 

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Conditions to the Closing of the Acquisition

 

The Avalon stockholders must approve the Nasdaq Proposal. The approval of the Nasdaq Proposal requires the affirmative vote of the holders of a majority of votes cast by the stockholders present in person or represented by proxy and entitled to vote thereon at the annual meeting.

 

In addition, Avalon must consummate the Equity Financing and the VIE Agreements must have been executed and delivered. Please see the section entitled “The Purchase Agreement—Conditions to the Closing of the Acquisition.”

 

Non-Solicitation

 

In the Purchase Agreement, Sen Lang and its affiliates agreed not to (i) solicit, initiate, or encourage the submission of any proposal or offer from any person relating to the acquisition of the equity or assets of Sen Lang, its subsidiaries and SenlangBio and its subsidiaries (collectively, the “Acquired Companies”) or (ii) enter into or renew any distribution agreement related to the business of the Acquired Companies, in each case without the prior written consent of Avalon.

 

Termination of the Purchase Agreement

 

Either Avalon or the Sen Lang Representative can terminate the Purchase Agreement under certain circumstances, which would prevent the Acquisition from being consummated. For more information, please see the section entitled “The Purchase Agreement—Termination of the Purchase Agreement.”

 

Equity Financing

 

In connection with the Acquisition, on June 13, 2021, an institutional investor (the “Investor”) entered into an agreement, as amended on June 24, 2021, with SenlangBio related to the purchase of registered capital of SenlangBio (the “OpCo Capital Increase Agreement”) pursuant to which the Investor will acquire an aggregate of up to 13.5% of the equity ownership of SenlangBio for an aggregate purchase price (the “Subscription Amount) of approximately US$30,000,000 (represented by an actual investment of RMB200,000,000) (the “Equity Financing”), which funds will be invested in SenlangBio in three equal installments of approximately US$10,000,000, at a fixed price, the first to be upon the closing of the Acquisition, the second to be within three months after the closing and the third to be within six months after the closing. In addition, pursuant to a Securities Exchange Agreement, as amended on June 24, 2021 (the “Exchange Agreement”), by and among the Company, Sen Lang, SenlangBio and the Investor, dated June 13, 2021, the Investor shall have the right, exercisable between the six-month and five year-anniversaries of the respective initial closing and installment closings, to elect to exchange, from time to time, all or part of its then-owned equity ownership of SenlangBio for shares (the “Exchange Shares”) of Avalon Common Stock at a fixed exchange price of US$1.21 per share of Avalon Common Stock, which was the market price of the Avalon Common Stock as of the date of the Exchange Agreement under Nasdaq rules. In addition, the Exchange Agreement provides that the Investor may only exchange up to 10% of its total investment amount in any 30 day period.

 

The VIE Structure

 

As a part of the restructure of Sen Lang, its subsidiaries and SenlangBio and its subsidiaries (collectively, the “Acquired Companies”) before the closing of the Acquisition, SenlangBio and SenlangBio Clinical Laboratory will be controlled by the PRC Subsidiary by entering into a series of variable interest entities agreements among the PRC Subsidiary, SenlangBio and all current shareholders of SenlangBio, as well as the Investor (such agreements are collectively referred to as the “VIE Agreements”, and such contractual control arrangement is referred to as the “VIE Structure”).

 

 

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In the PRC, the VIE structure has become a popular and widely used overseas listing mode for enterprises in the sectors which are foreign investment restricted or prohibited, like the development and application of genetic diagnosis and treatment technology, which includes SenlangBio’s business. The VIE structure refers to an agreement mode in which the PRC domestic operating entity is separated from the overseas-listed entity, and the overseas-listed party/holding company controls the domestic operating entity by signing relevant agreements with the parties who would otherwise receive the benefits of ownership of SenlangBio and control its operations (i.e., VIE Agreements), and is able to consolidate the financial statements of the PRC domestic operating entity into the overseas-listed entity/holding company. After the completion of the overall VIE Structure, the interests/profits from the domestic operation, as well as operational control, have been transferred to the overseas listing/holding company.

 

It is a condition to closing under the Purchase Agreement that SenlangBio, the PRC Subsidiary and the shareholders of SenlangBio (including the Investor) execute the VIE Agreements. These VIE Agreements include (i) an exclusive technical consultation and service agreement; (ii) an exclusive purchase option agreement; (iii) an entrustment agreement of shareholders’ rights; (iv) a share pledge agreement; and (v) a spouse consent letter.

 

Interests of Certain Persons in the Acquisition

 

Avalon

 

In considering the recommendation of Avalon’s board of directors to vote in favor of the Avalon Proposals, stockholders should be aware that, aside from their interests as stockholders, certain Avalon directors and officers have interests in the Acquisition that are different from, or in addition to, those of other stockholders generally. Avalon’s directors were aware of and considered these interests, among other matters, in evaluating the Acquisition, and in recommending to stockholders that they approve the Avalon Proposals. Stockholders should take these interests into account in deciding whether to approve the Avalon Proposals.

 

As of June 30, 2021, Avalon’s directors and executive officers beneficially owned approximately 66.3% of the shares of Avalon Common Stock (calculated in accordance with SEC rules that define beneficial ownership). All of the current executive officers of Avalon will continue in their current positions after the Acquisition, and all of the directors except for Meng Li will continue on the Avalon board after the Acquisition. In addition, on April 10, 2020, in the ordinary course of business, SenlangBio entered into a scientific research project cooperation agreement with Beijing Lu Daopei Hospital Co., Ltd., under which Beijing Lu Daopei Hospital Co., Ltd. conducts scientific research for the interest of SenlangBio on the cytoplasmic CD79a antibody gated multicolor flow cytometry monitoring CD19-CAR-T bridging allogeneic transplantation for the treatment of refractory and relapsed acute B lymphocytic leukemia. SenlangBio provides research funds in the amount of RMB 2 million to Beijing Lu Daopei Hospital Co., Ltd. Beijing Lu Daopei Hospital Co., Ltd. is a wholly-owned subsidiary of an entity whose chairman is Wenzhao Lu, the Chairman and largest shareholder of Avalon.

 

These interests may influence Avalon’s board of directors in making their recommendation that you vote in favor of the approval of the Avalon Proposals.

 

For more information, please see the section entitled “The Acquisition—Interests of Avalon’s Directors and Officers in the Acquisition.”

 

Reasons for the Approval of the Acquisition

 

After careful consideration, Avalon’s board of directors recommends that Avalon stockholders vote “FOR” each of the Avalon Proposals being submitted to a vote of the Avalon stockholders at the Avalon annual meeting of stockholders.

 

For a description of Avalon’s reasons for the approval of the Acquisition and the recommendation of its board of directors, see the section entitled “The Acquisition—Reasons for the Acquisition.”

 


 

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Regulatory Approvals Required for the Acquisition

 

Avalon must comply with applicable federal and state securities laws and the rules and regulations of Nasdaq in connection with the issuance of shares of Avalon Common Stock in connection with the Acquisition and the issuance of the Exchange Shares in the Equity Financing and the filing of this proxy statement with the SEC.

 

Accounting Treatment of the Acquisition

 

The Acquisition is expected to be accounted for as a business acquisition, with Avalon identified as the accounting acquirer. Avalon is considered the accounting acquirer since immediately following the closing: (i) Avalon stockholders will own a majority of the voting rights of the post-Acquisition company; (ii) Avalon will have designate a majority (eight of nine) of the initial members of the board of directors of the post-Acquisition company; (iii) Avalon’s senior management will hold the majority of the key positions in senior management of the post-Acquisition company; and (iv) Avalon will continue to maintain its corporate headquarters in Freehold, New Jersey, United States. SenlangBio will continue to maintain operations in the Shijiazhuang High-tech Development Zone, Hebei Province, China.

 

The acquisition consideration is 81,000,000 shares of Avalon Common Stock. The purchase price will be allocated to the acquired assets and assumed liabilities based on their fair values at the closing date, and any excess is initially allocated to identifiable intangible assets mainly consisting of cell and gene engineering technologies with the ability to generate innovative and transformative cellular immunotherapies for solid and hematologic cancers, which will be amortized over 10 years. The initial allocation is subject to change upon the final valuation which is to be done at the time of closing. Such change could have a material impact on Avalon’s financial statements.

 

Material U.S. Federal Income Tax Consequences of the Acquisition

 

Neither Avalon nor its stockholders are expected to recognize federal income tax or gain as a result of the Acquisition.

 

Ownership Following the Acquisition and the Equity Financing

 

It is anticipated that, upon the consummation of the Acquisition, the ownership of Avalon will be as follows:

 

Current Avalon stockholders will own 51.0% of the total voting shares outstanding; and

 

Current Sen Lang Shareholders will own 49.0% of the total voting shares outstanding.

 

The numbers of shares and percentage interests set forth above do not take into account (i) shares of Avalon Common Stock issuable upon the exchange of shares of SenlangBio purchased by the Investor in the Equity Financing, pursuant to the Exchange Agreement, (ii) shares of Avalon Common Stock issuable upon the exercise of outstanding options and warrants and (iii) potential future issuances of Avalon securities.

 

In addition, under the Exchange Agreement, the Investor shall have the right, exercisable following the six month anniversary of the closing of the Acquisition and until the five year anniversary of the closing of the Acquisition, to elect to exchange, from time to time, all or part of its equity ownership of SenlangBio for Exchange Shares of Avalon at an effective exchange price of $1.21 per share of Avalon Common Stock. Following the completion of the financing and assuming the full funding by the investor in the financing, the aggregate number of shares of Avalon Common Stock that would be issuable under the Exchange Agreement (assuming the exchange of all shares) would be approximately 25,885,000 (using the conversion rate of US dollars to RMB of 6.3856 as of June 11, 2021). The resultant equity ownership of Avalon would be as follows:

 

Current Avalon stockholders will own 44.1% of the total voting shares outstanding;

 

Current Sen Lang Shareholders will own 42.4% of the total voting shares outstanding and

 

The Investor will own 13.5% of the total voting shares outstanding.

 

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements in this proxy statement may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding Avalon, Avalon’s management team’s, SenlangBio and SenlangBio’s management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Actual results may differ materially from Avalon’s and SenlangBio’s current expectations depending upon a number of factors. These factors include, among others:

 

the inherent uncertainty associated with financial projections, restructuring in connection with, and successful consummation of, the Acquisition;

 

subsequent integration of Avalon’s and SenlangBio’s businesses and the ability to recognize the anticipated synergies and benefits of the Acquisition;

 

the inability to complete the Acquisition due to the failure to satisfy conditions to the closing in the Purchase Agreement and/or the failure the complete the Equity Financing;

 

the post-Acquisition company’s financial and business performance following the Acquisition, including plans to develop and commercialize additional products;

 

changes in SenlangBio’s and Avalon’s strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans;

 

developments and projections relating to the post-Acquisition company’s competitors or industry;

 

the impact of health epidemics, including the COVID-19 pandemic, on the business of Avalon and SenlangBio;

 

the ability to protect and maintain the post-Acquisition company’s intellectual property protection and not infringe on the rights of others;

 

developments and projections relating to the post-Acquisition company’s competitors or industry;

 

future regulatory, judicial and legislative changes in Avalon’s or SenlangBio’s industry;

 

access to available financing (including the Equity Financing in connection with the Acquisition) on a timely basis and on reasonable terms;

 

the receipt of required regulatory approvals for the Acquisition;

 

the diversion of management time on Acquisition-related issues;

 

the inability to maintain the listing of Avalon Common Stock on Nasdaq following the Acquisition;

 

the outcome of any legal proceedings that may be instituted against Avalon following announcement of the proposed Acquisition and transactions contemplated thereby; and

 

other risks and uncertainties described in this proxy statement and in the Annual Report, including those in the sections entitled “Risk Factors.”

 

These forward-looking statements are based on information available as of the date of this proxy statement, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. Except as expressly required by law, including the securities laws of the United States, Avalon and SenlangBio disclaim any intent or obligation to update or revise these forward-looking statements.

 

 

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THE ANNUAL MEETING OF AVALON STOCKHOLDERS

 

The Avalon Annual Meeting

 

Avalon is furnishing this proxy statement to you as part of the solicitation of proxies by its board of directors for use at the annual meeting, and at any adjournment or postponement thereof. This proxy statement is first being furnished to Avalon’s stockholders on or about [    ], 2021. This proxy statement provides you with information you need to know to be able to vote or instruct your vote to be cast at the annual meeting of stockholders.

 

Date, Time and Place of the Annual Meeting

 

Due to the public health impact of the coronavirus outbreak (COVID-19) and to support the health and well-being of Avalon’s stockholders, the Avalon annual meeting will be held in a virtual meeting format only. The annual meeting of stockholders of Avalon will be held at [ ] [a/p].m. Eastern time, on [ ], 2021, at [LINK], or such other date, time and place to which such meeting may be adjourned or postponed, for the purpose of considering and voting upon the proposals.

 

On the day of the Avalon annual meeting, if you have properly registered, you may enter the annual meeting by logging in using the event password you received via email in your registration confirmation at [OTHER LINK]. You will not be able to attend the Avalon annual meeting in-person.

 

Purpose of the Annual Meeting

 

At the Avalon annual meeting of stockholders, Avalon will ask the Avalon stockholders to vote in favor of the following proposals:

 

Proposal 1—to elect the nine director nominees named in the proxy statement to hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified (the “Director Election Proposal”);

 

Proposal 2—to ratify the appointment of Marcum LLP as the Company’s independent auditors for the fiscal year ending December 31, 2021 (the “Auditor Proposal”); and

 

Proposal 3—to approve, pursuant to the rules of the Nasdaq Stock Market, the issuance of (i) the Acquisition Shares pursuant to the terms of the Purchase Agreement and (ii) the Exchange Shares (the “Nasdaq Proposal”);

 

Proposal 4—to adjourn the annual meeting, if necessary, to another time or place to solicit additional proxies if there are not sufficient votes in favor of Proposal 1 (the “Adjournment Proposal”).

 

Recommendation of the Avalon Board of Directors

 

Avalon’s board of directors believes that each of the proposals to be presented at the annual meeting of stockholders is in the best interests of Avalon and its stockholders and unanimously recommends that its stockholders vote “FOR” each of the Avalon Proposals as further described below.

 

When you consider the recommendation of Avalon’s board of directors, you should keep in mind that certain of Avalon’s board of directors and officers have interests in the Acquisition that are different from, or in addition to, your interests as a stockholder. These interests include, among other things:

 

as of June 30, 2021, Avalon’s directors and executive officers beneficially owned approximately 66.3% of the shares of Avalon Common Stock (calculated in accordance with SEC rules that define beneficial ownership);

 

all of the current executive officers of Avalon will continue in their current positions after the Acquisition, and all of the directors except for Meng Li will continue on the Avalon board after the Acquisition. In addition, On April 10, 2020, in the ordinary course of business, SenlangBio entered into a scientific research project cooperation agreement with Beijing Lu Daopei Hospital Co., Ltd., under which Beijing Lu Daopei Hospital Co., Ltd. conducts scientific research for the interest of SenlangBio on the cytoplasmic CD79a antibody gated multicolor flow cytometry monitoring CD19-CAR-T bridging allogeneic transplantation for the treatment of refractory and relapsed acute B lymphocytic leukemia. SenlangBio provides research funds in the amount of RMB 2 million to Beijing Lu Daopei Hospital Co., Ltd. Beijing Lu Daopei Hospital Co., Ltd. is a wholly-owned subsidiary of an entity whose chairman is Wenzhao Lu, the Chairman and largest shareholder of Avalon; and

 

the continued indemnification of current directors and officers of Avalon and the continuation of directors’ and officers’ liability insurance after the Acquisition.

 

 

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Record Date and Voting

 

You will be entitled to vote or direct votes to be cast at the annual meeting of stockholders if you owned shares of Avalon Common Stock at the close of business on [    ], 2021, which is the record date for the annual meeting of stockholders. Each share of Avalon Common Stock is entitled to one vote per share. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker, bank or other nominee to ensure that votes related to the shares you beneficially own are properly counted. On the record date, there were [    ] shares of Avalon Common Stock issued and outstanding.

 

As of June 30, 2021, Avalon’s directors and executive officers beneficially owned 66.3% of the shares of Avalon Common Stock (calculated in accordance with SEC rules that define beneficial ownership) and owned 54,145,161 shares, 63.6% of the issued and outstanding Avalon Common Stock on such date. Although under no contractual or other obligation to do so, all of such directors and executive officers are currently expected to vote in favor of all of the Avalon Proposals, including the Nasdaq Proposal.

 

Voting Your Shares

 

Each share of Avalon Common Stock that you own in your name entitles you to one vote on each of the proposals for the annual meeting of stockholders. Your one or more proxy cards show the number of shares of Avalon Common Stock that you own.

 

If you are a holder of record, there are different ways to vote your shares at the annual meeting of stockholders:

 

You can vote by completing, signing and returning the enclosed proxy card in the postage-paid envelope provided. If you hold your shares in “street name” through a bank, broker or other nominee, you will need to follow the instructions provided to you by your bank, broker or other nominee to ensure that your shares are represented and voted at the applicable annual meeting(s). If you vote by proxy card, your “proxy,” whose name is listed on the proxy card, will vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on how to vote your shares, your shares of Avalon Common Stock will be voted as recommended by Avalon’s board of directors. With respect to proposals for the annual meeting of stockholders, that means: “FOR” each of the Avalon Proposals.

 

You can vote via the Internet by following the instructions on the voting instruction form or proxy card in your proxy materials.

 

  You can vote via telephone by following the instructions on the voting instruction form or proxy card in your proxy materials.
     
  You can attend the annual meeting and vote via live website. If you wish to vote your shares electronically at the annual meeting, there will be a live link provided during the annual meeting. You will need the virtual control number assigned to you in order to vote.

  

Who Can Answer Your Questions About Voting Your Shares

 

If you have any questions about how to vote or direct a vote in respect of your shares of Avalon Common Stock, you may contact Avalon at 4400 Route 9 South, Suite 3100, Freehold, New Jersey 07728, telephone number (732) 780-4400.

 

Quorum and Vote Required for the Avalon Proposals

 

A quorum of Avalon’s stockholders is necessary to hold a valid meeting. The holders of at least the majority of the outstanding shares of Avalon Common Stock as of the record date, represented in person or by proxy, will constitute a quorum for the transaction of business at the Avalon annual meeting. Avalon will include proxies marked as abstentions and broker non-votes to determine the number of shares present at the Avalon annual meeting.

 

The approval of the Auditor Proposal, the Nasdaq Proposal and the Adjournment Proposal requires the affirmative vote of the holders of a majority of votes cast by the stockholders present in person or represented by proxy and entitled to vote thereon at the annual meeting, and the approval of the Director Election Proposal requires the affirmative vote of a plurality of the votes properly cast on the election of directors. Accordingly, abstentions and broker non-votes, if any, will have no effect on the outcome of the Director Election Proposal, the Auditor Proposal, the Nasdaq Proposal and the Adjournment Proposal.

 

 

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Abstentions and Broker Non-Votes

 

If your shares of Avalon Common Stock are held by your broker as your nominee, that is, in “street name,” the enclosed voting instruction card is sent by the institution that holds your shares. Please follow the instructions included on that proxy card regarding how to instruct your broker to vote your shares.

 

If you do not give instructions to your broker, the question of whether your broker or nominee will still be able to vote your shares depends on whether the NYSE deems the particular proposal to be a “routine” matter and how your broker or nominee exercises any discretion they may have in the voting of the shares that you beneficially own. Brokers and nominees can use their discretion to vote “uninstructed” shares with respect to matters that are considered to be “routine,” but not with respect to “non-routine” matters. Under the rules and interpretations of the NYSE, “non-routine” matters are matters that may substantially affect the rights or privileges of stockholder, such as mergers, stockholder proposals, elections of directors (even if not contested), executive compensation (including any advisory stockholder votes on executive compensation and on the frequency of stockholder votes on executive compensation), and certain corporate governance proposals, even if management-supported.

 

For any Avalon Proposal that is considered a “routine” matter, your broker or nominee may vote your shares in its discretion either for or against the proposal even in the absence of your instruction. For any Avalon Proposal that is considered a “non-routine” matter for which you do not give your broker instructions, the shares will be treated as broker non-votes. “Broker non-votes” occur when a beneficial owner of shares held in street name does not give instructions to the broker or nominee holding the shares as to how to vote on matters deemed “non-routine.” Broker non-votes will not be considered to be shares “entitled to vote” at the meeting and will not be counted as having been voted on the applicable proposal. Therefore, if you are a beneficial owner and want to ensure that shares you beneficially own are voted in favor or against any or all of the Avalon Proposals, the only way you can do so is to give your broker or nominee specific instructions as to how the shares are to be voted. Avalon currently anticipates that only the Auditor Proposal is likely to be deemed routine by the NYSE.

 

Revocability of Proxies

 

If you have submitted a proxy to vote your shares and wish to change your vote, you may do so by:

 

filing with Avalon’s Secretary, a letter revoking the proxy;

 

submitting another signed proxy with a later date; or

 

attending the Avalon annual meeting and voting online, provided you file a written revocation with the Secretary of the annual meeting prior to the voting of such proxy.

 

Appraisal or Dissenters’ Rights

 

No appraisal or dissenters’ rights are available to holders of shares of Avalon Common Stock in connection with the Acquisition.

 

Solicitation of Proxies

 

Avalon will pay the cost of soliciting proxies for the annual meeting, including the costs of preparing, printing and mailing this proxy statement and the Annual Report for the Avalon annual meeting. Avalon also will reimburse banks, brokers and other custodians, nominees and fiduciaries representing beneficial owners of shares of Avalon Common Stock for their expenses in forwarding soliciting materials to beneficial owners of Avalon Common Stock and in obtaining voting instructions from those owners. Avalon’s directors, officers and employees may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.

 

 

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RISK FACTORS

 

The post-Acquisition company will face a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement, you should carefully consider the material risks described below before deciding how to vote your shares of stock. In addition, you should consider the risks associated with the business of Avalon and SenlangBio because these risks may also affect the post-Acquisition company. You should also read and consider the other information in this proxy statement. Please see the section entitled “Where You Can Find More Information.”

 

Risks Related to SenlangBio

 

Preliminary Note: references in this sub-section titled “Risks Related to SenlangBio” to “we,” “our,” “us” and similar terms refer to SenlangBio and its subsidiaries.

 

Risks Related to SenlangBio’s Financial Position and Capital Requirements

 

SenlangBio is a biopharmaceutical company that will face many risks frequently encountered by clinical-stage businesses.

 

Marketing approval of SenlangBio’s therapeutic product candidates requires extensive clinical testing data to support the safety and efficacy requirements needed for regulatory approval. The likelihood of success of SenlangBio’s business plan must be considered in light of the problems, substantial expenses, difficulties, complications and delays frequently encountered in connection with developing and expanding clinical-stage businesses and the regulatory and competitive environment in which SenlangBio operates. Biopharmaceutical product development is a highly speculative undertaking, involves a substantial degree of risk and is a capital-intensive business.

 

Accordingly, investors should consider SenlangBio’s prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the clinical stages of development. Potential investors should carefully consider the risks and uncertainties that a company with a limited operating history will face. In particular, potential investors should consider that SenlangBio cannot assure you that SenlangBio will be able to:

 

  successfully implement or execute SenlangBio’s current business plan, or that SenlangBio’s business plan is sound;
     
  receive approval by regulatory agencies, including the NMPA in the PRC, of clinical trial protocols so that anticipated clinical trials commence;

 

successfully complete clinical trials and obtain regulatory approval for the marketing of its product candidates;

 

manufacture clinical drug product and subsequently establish a commercial drug supply;

 

secure market exclusivity and/or adequate intellectual property protection for its product candidates;

 

achieve broad market acceptance of its product candidates in the medical community and with third party payors and consumers;

 

attract and retain an experienced management and advisory team; and

 

raise sufficient funds in the capital markets to effectuate its business plan including clinical development, product development/manufacture regulatory approval and commercialization for its product candidates.

 

If SenlangBio cannot successfully execute any one of the foregoing, SenlangBio’s business may not succeed and your investment will be adversely affected.

 

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SenlangBio has incurred operating losses in each year since its inception and expects to continue to incur substantial losses for the foreseeable future. SenlangBio may never become profitable or, if achieved, be able to sustain profitability.

 

SenlangBio expects to continue to incur substantial expenses and losses without sufficient revenues unless and until SenlangBio is able to obtain regulatory approval and successfully commercialize one or more of its product candidates. To date, SenlangBio has only generated limited revenue and it expects to incur significant expense to complete its clinical programs for its product candidates in the PRC and elsewhere. SenlangBio may never be able to obtain regulatory approval for the marketing of its product candidates in any indication in the PRC or elsewhere. Even if it is able to commercialize any product candidate, there can be no assurance that it will generate significant enough revenues to ever achieve profitability. SenlangBio’s net loss for the year ended December 31, 2020 and for the three months ended March 31, 2021 was $2,442,363 and $135,280, respectively. At March 31, 2021, SenlangBio’s accumulated deficit since inception was $8,515,294.

 

Until SenlangBio obtains FDA approval for any of its product candidates, which is not expected until after completion of several phases of clinical trials and submission and successful review of a new drug application and associated pre-marketing approval by regulatory agencies, it expects that its research and development expenses will continue to increase as it advances its clinical trials for its product candidates. As a result, SenlangBio expects to continue to incur substantial losses for the foreseeable future, and these losses will be increasing. SenlangBio is uncertain when or if it will be able to achieve or sustain profitability. If SenlangBio achieves profitability in the future, it may not be able to sustain profitability in subsequent periods. Failure to become and remain profitable would impair SenlangBio’s ability to sustain operations and adversely affect its ability to raise capital.

 

SenlangBio will require additional capital to fund its operations, and if SenlangBio fails to obtain necessary financing, it may not be able to complete the development and commercialization of its product candidates. SenlangBio’s cash or cash equivalent will only fund its operations for a limited time and it will need to raise additional capital to support its development and commercialization efforts.

 

SenlangBio expects to spend substantial amounts to complete the development of, seek regulatory approvals for and commercialize its product candidates. Even with the expected cash proceeds of approximately $30 million resulting from the Equity Financing and the revenues generated from the SenlangBio Clinical Laboratory business, SenlangBio will require substantial additional capital to complete the development and potential commercialization of its product candidates. Avalon and SenlangBio currently expect that SenlangBio’s cash reserves, based on cash balances at March 31, 2021, together with the proceeds from the Equity Financing, will fund SenlangBio’s operations for 18 months following the closing of the Acquisition, based on current plans and assumptions.

 

SenlangBio is currently operating at a loss and expects its operating costs will increase significantly as it incurs costs related to the clinical trials for its product candidates. At March 31, 2021, SenlangBio had a cash and cash equivalents balance of $188,887. Currently, SenlangBio’s operations are focused on utilizing cell and gene engineering technologies to generate innovative and transformative cellular immunotherapies for solid and hematologic cancers. SenlangBio provides general laboratory testing and immunology and hematology testing services for patients and other customers in China for fees.

 

SenlangBio had a working capital deficit of $1,774,003 at March 31, 2021, and incurred negative cash flow from operating activities of $233,267 for the three months ended March 31, 2021. SenlangBio has a limited operating history and its continued growth is dependent upon the continuation of providing general laboratory testing and immunology and hematology testing services, and obtaining additional financing to fund future obligations and pay liabilities arising from normal business operations. In addition, the current cash balance cannot be projected to cover the operating expenses for the next twelve months from March 31, 2021. These matters raise substantial doubt about SenlangBio’s ability to continue as a going concern. The ability of SenlangBio to continue as a going concern is dependent on SenlangBio’s ability to raise additional capital, implement its business plan, and generate significant revenues. There are no assurances that SenlangBio will be successful in its efforts to generate significant revenues, maintain sufficient cash balance or report profitable operations or to continue as a going concern. If the Acquisition and Equity Financing do not close, SenlangBio plans on raising capital through bank and other borrowings to implement its business plan. However, there is no assurance these plans will be realized and that any additional financings will be available to SenlangBio on satisfactory terms and conditions, if any.

 

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SenlangBio does not currently have any arrangements or credit facilities in place as a source of funds, and there can be no assurance that it will be able to raise sufficient additional capital on acceptable terms, or at all. SenlangBio or the post-Acquisition company may seek, in addition to the Equity Financing, additional capital through a combination of private and public equity offerings, debt financings and strategic collaborations. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting SenlangBio’s ability to take specific actions, such as incurring additional debt, and could increase its expenses and require that its assets secure such debt.

 

Equity financing, if obtained, could result in dilution to existing stockholders and/or require such stockholders to waive certain rights and preferences. If such financing is not available on satisfactory terms, or is not available at all, SenlangBio may be required to delay, scale back or eliminate the development of business opportunities and its operations and financial condition may be materially adversely affected. SenlangBio can provide no assurances that any additional sources of financing will be available to it on favorable terms, if at all. In addition, if SenlangBio is unable to secure sufficient capital to fund its operations, it might have to enter into strategic collaborations that could require it to share commercial rights to its product candidates with third parties in ways that it currently does not intend or on terms that may not be favorable to SenlangBio.

 

Risks Related to SenlangBio’s Business

 

The NMPA may refuse to consider the data from the investigator-initiated clinical trials of SenlangBio due to concerns that (1) this does not follow the mainstream regulatory pathway of relying on registered clinical trials, or that (2) the non-registered clinical trials of the product may not otherwise fully comply with the same requirements applicable to registered clinical trials, as further explained below.

 

While investigator-initiated trials may provide us with clinical data that can inform our future development strategy, we do not have full control over the protocols, administration, or conduct of the trials. As a result, we are subject to risks associated with the way investigator-initiated trials are conducted, and there is no assurance the clinical data from any of our investigator-initiated clinical trials in China will be accepted by the U.S. Food and Drug Administration (FDA), the European Medicines Agency (EMA), Japanese Pharmaceuticals and Medical Devices Agency (PMDA) or other comparable regulatory authorities outside of China, for any of our product candidates. Third parties in such investigator-initiated clinical trials may not perform their responsibilities for our clinical trials on our anticipated schedule or consistent with clinical trial protocols or applicable regulations. Further, any data integrity issues or patient safety issues arising out of any of these trials would be beyond our control, yet could adversely affect our reputation and damage the clinical and commercial prospects for our product candidates. Additional risks include difficulties or delays in communicating with investigators or administrators, procedural delays and other timing issues, and difficulties or differences in interpreting data. Third-party investigators may design clinical trials with clinical endpoints that are more difficult to achieve, or in other ways that increase the risk of negative clinical trial results compared to clinical trials that we may design on our own. As a result, our lack of control over the design, conduct and timing of, and communications with the FDA, NMPA, EMA and PMDA regarding investigator-initiated trials expose us to additional risks and uncertainties, many of which are outside our control, and the occurrence of which could adversely affect the prospects for our product candidates.

 

Furthermore, there is no assurance the clinical data from any of our investigator-initiated clinical trials in China, where the patients are predominately of Chinese descent, will produce similar results in patients of different races, ethnicities or those of non-Chinese descent.

 

All material aspects of the research, development, manufacturing and commercialization of biopharmaceutical products in China are heavily regulated. Any failure to comply with existing regulations and industry standards, or any adverse actions by the NMPA or other comparable regulatory authorities against us, could negatively impact our reputation and our business, financial condition, results of operations and prospects.

 

The process of obtaining regulatory approvals and compliance with appropriate laws and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable requirements at any time during the product development or approval process, or after approval, may subject an applicant to administrative or judicial sanctions. These sanctions could include the regulator’s refusal to approve pending applications, withdrawal of an approval, license revocation, a clinical hold, or total or partial suspension of production or distribution. Failure to comply with these regulations could have a material adverse effect on our business.

 

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Our preclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize these product candidates on a timely basis or at all, which would have an adverse effect on our business.

 

Our product candidates are still in the preclinical development stage, and the risk of failure of preclinical programs is high. Before we can commence clinical trials for a product candidate, we must complete extensive preclinical testing and studies to obtain regulatory clearance to initiate human clinical trials. We cannot be certain of the timely completion or outcome of our preclinical testing and studies and cannot predict if the NMPA will accept our proposed clinical programs or if the outcome of our preclinical testing and studies will ultimately support the further development of our programs. As a result, we cannot be sure that we will be able to submit IND applications for all of our preclinical programs on the timelines we expect, and we cannot be sure that submission of IND applications will result in the NMPA allowing clinical trials to begin.

 

Clinical trials are difficult to design and implement, involve uncertain outcomes and may not be successful.

 

Human clinical trials are difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The design of a clinical trial can determine whether its results will support approval of a product candidate and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. As an organization, we have limited experience designing clinical trials and may be unable to design and execute clinical trials to support regulatory approval. There is a high failure rate for biologic products proceeding through clinical trials, which may be higher for our product candidates because they are based on new technology and engineered on a patient-by-patient basis. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in preclinical testing and earlier-stage clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, we may experience regulatory delays or rejections as a result of many factors, including changes in regulatory policy during the period of our product candidate development. Any such delays could negatively impact our business, financial condition, results of operations and prospects.

  

Success in preclinical studies or clinical trials may not be indicative of results in future clinical trials.

 

Results from preclinical studies are not necessarily predictive of future clinical trial results, and interim results of a clinical trial are not necessarily indicative of final results. While we have received some positive data in previous preclinical and IIT trials, we are still in the process of producing and gathering more data and are still conducting more additional preclinical and IIT trials in order to seek regulatory approvals. For that reason, we do not know whether these candidates will be effective and safe for the intended indications in humans. Our product candidates may fail to show the desired safety and efficacy in further, registered clinical development despite positive results in preclinical and IIT studies. This failure to establish sufficient efficacy and safety could cause us to abandon clinical development of our product candidates.

 

We depend on enrollment of patients in our clinical trials for our product candidates. If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.

 

Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. We may experience difficulties in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with the protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. The enrollment of patients depends on many factors, including:

 

  the patient eligibility criteria defined in the protocol;
     
  the number of patients with the disease or condition being studied;
     
  the understanding of risks and benefits of the product candidate in the trial;
     
  clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating or drugs that may be used off-label for these indications;

 

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  the size and nature of the patient population who meet inclusion criteria;
     
  the proximity of patients to study sites;
     
  the design of the clinical trial;
     
  clinical trial investigators’ ability to recruit clinical trial investigators with the appropriate competencies and experience;
     
  competing clinical trials for similar therapies or other new therapeutics not involving T cell-based immunotherapy;
     
  our ability to obtain and maintain patient consents; and
     
  the risk that patients enrolled in clinical trials will drop out of the clinical trials before completion of their treatment.

 

Delays in patient enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these clinical trials and adversely affect our ability to advance the development of our product candidates. In addition, many of the factors that may lead to a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

 

If the clinical trials of any of our product candidates fail to demonstrate safety and efficacy to the satisfaction of the NMPA, or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

 

We may not commercialize, market, promote or sell any product candidate without obtaining marketing approval from the NMPA, and we may never receive such approvals. It is impossible to predict accurately when or if any of our product candidates will prove effective or safe in humans and will receive regulatory approval. Before obtaining marketing approval from regulatory authorities for the commercial sale of any of our product candidates, we must demonstrate through lengthy, complex and expensive preclinical studies and clinical trials that our product candidates are both safe and effective for use in each proposed indication. Clinical trials are expensive, difficult to design and implement, can take many years to complete and are uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of clinical development.

 

We may experience numerous unforeseen events prior to, during or as a result of clinical trials that could delay or prevent our ability to receive marketing approval or commercialize any of our product candidates, including:

 

  the NMPA may disagree as to the number, design or implementation of our clinical trials, or may not interpret the results from clinical trials as we do;
     
  regulators may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
     
  we may not reach agreement on acceptable terms with prospective clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different clinical trial sites;
     
  clinical trials of our product candidates may produce negative or inconclusive results;
     
  we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
     
  the number of patients required for clinical trials of our product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate, participants may drop out of these clinical trials at a higher rate than we anticipate or we may fail to recruit eligible patients to participate in a trial;
     
  our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

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  regulators may issue a clinical hold, or regulators may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
     
  the cost of clinical trials of our product candidates may be greater than we anticipate;
     
  the NMPA may fail to approve our manufacturing processes or facilities;

 

  the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate;
     
  our product candidates may have undesirable side effects or other unexpected characteristics, particularly given their novel, first-in-human application, causing us or our investigators, or regulators to suspend or terminate the clinical trials; and
     
  the approval policies or regulations of the NMPA may significantly change in a manner rendering our clinical data insufficient for approval.

 

To the extent that the results of the trials are not satisfactory for the NMPA to approve our new drug application, the commercialization of our product candidates may be significantly delayed, or we may be required to expend significant additional resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates.

 

Coronavirus could adversely impact SenlangBio’s business, including SenlangBio’s clinical trials.

 

In December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. Since then, the COVID-19 coronavirus has spread globally. The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on businesses, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked. As a result, we may experience disruptions that could severely impact our business and clinical trials, including:

 

delays or difficulties in enrolling patients in planned clinical trials;

 

delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;

 

diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as clinical trial sites and hospital staff supporting the conduct of SenlangBio’s clinical trials;

 

interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others;

 

limitations in employee resources that would otherwise be focused on the conduct of clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;

 

delays in receiving approval from local regulatory authorities to initiate planned clinical trials;

 

delays in clinical sites receiving the supplies and materials needed to conduct clinical trials;

 

interruption in global shipping that may affect the transport of clinical trial materials, such as investigational drug product used in clinical trials;

 

changes in local regulations as part of a response to the COVID-19 coronavirus outbreak which may require changes in the ways in which clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether; and

 

delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees.

 

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The global outbreak of the COVID-19 coronavirus continues to rapidly evolve. The extent to which the COVID-19 coronavirus may impact SenlangBio’s business and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the PRC and other countries, business closures or business disruptions and the effectiveness of actions taken in the PRC and other countries to contain and treat the disease. The COVID-19 pandemic could negatively impact SenlangBio’s operations even though the pandemic did not significantly impact its operation in the past. However, given the dynamic nature of these circumstances, the uncertainty around the potential resurgence of the COVID-19 cases in China, and the instability of local policies and restrictions, the COVID-19 impact over SenlangBio’s business in the rest of year 2021 cannot be reasonably estimated at this time. If COVID-19 cases resurged in the area SenlangBio conducted its business and local government implemented new restrictions in the effort to contain the spread, it is expected SenlangBio’s business will be negatively impacted.

 

SenlangBio faces competition from other biotechnology and pharmaceutical companies and its operating results will suffer if SenlangBio fails to compete effectively.

 

The biotechnology and pharmaceutical industries are intensely competitive and subject to rapidly evolving technology and intense research and development efforts. SenlangBio has competitors in a number of jurisdictions that have substantially greater name recognition, commercial infrastructures and financial, technical and personnel resources than it has. Established competitors may invest heavily to quickly discover and develop novel compounds that could make SenlangBio’s product candidates obsolete or uneconomical. Any new product that competes with an approved product may need to demonstrate compelling advantages in efficacy, cost, convenience, tolerability and safety to be commercially successful. Other competitive factors, including generic competition, could force SenlangBio to lower prices or could result in reduced sales. In addition, new products developed by others could emerge as competitors to SenlangBio’s product candidates. If SenlangBio is not able to compete effectively against its current and future competitors, its business will not grow and its financial condition and operations will suffer.

 

The competitive landscape includes companies that are engaging in cell and gene therapies. Considering the CAR-T field, some notable competitors (in similar size and scale of business) include (but not limited to) Gracell Biotechnologies (NASDAQ: GRCL), Legend Biotech Corporation (NASDAQ: LEGN), and Poseida Therapeutics, Inc. (NASDAQ: PSTX). For CAR-GDT cell therapy field, some notable companies include (but not limited to) Adicet Bio Inc. (NASDAQ: ACET), Incysus Therapeutics, Inc and GammaDelta Therapeutics.

 

Risks Relating to SenlangBio’s Intellectual Property Rights

 

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

 

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and patent applications are due to be paid to the NIPA (National Intellectual Property Administration) in several stages over the lifetime of a patent. NIPA requires compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. Although an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which non-compliance can result in abandonment, loss of priority or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the PRC. Non-compliance events that could result in abandonment or lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. In any such event, our competitors or other third parties might be able to enter the market, which would have a material adverse effect on our competitive position, business, financial condition, result of operations and prospects.

 

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Changes in patent law could extend the expected expiry date of third party patents.

 

In China, intellectual property laws are constantly evolving, with efforts being made to improve intellectual property protection in China. For example, an Amendment to the PRC Patent Law is implemented on June 1 2021 and proposed to introduce patent extensions to patents of new drugs that launched in the PRC. If adopted, patents owned by third parties may be extended, which may in turn affect our ability to commercialize our products without facing infringement risks. The adoption of this draft amendment may enable the patent owner to submit applications for a patent term extension. The length of any such extension is uncertain. If we are required to delay commercialization for an extended period of time, technological advances may develop and new products may be launched, which may in turn render our products non-competitive. We cannot guarantee that any other changes to PRC intellectual property laws would not have a negative impact on our intellectual property protection.

 

Intellectual property rights do not necessarily address all potential threats.

 

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business or permit us to maintain our competitive advantage. For example:

 

others may be able to make products that are similar to any product candidates we may develop or utilize similar technology that are not covered by the claims of the patents that we own or license now or in the future;

 

  we or any of our future licensors and collaborators might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or may license in the future;
     
  we or any of our future licensors and collaborators might not have been the first to file patent applications covering certain of our or their inventions;
     
  others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing, misappropriating or otherwise violating our intellectual property rights;
     
  it is possible that our pending owned or licensed patent applications will not lead to issued patents;
     
  patents that we hold rights to or that may be issued from our pending patent applications may not provide us with a competitive advantage, or may be held invalid or unenforceable, including as a result of legal challenges by our competitors or third parties;
     
  our competitors or other third parties might conduct research and development activities in jurisdictions where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;
     
  we may obtain patents for certain inventions many years before we obtain marketing approval for products containing such compounds, and because patents have a limited life, which may begin to run prior to the commercial sale of the related product, the commercial value of our patents may be limited;
     
  we may not develop additional proprietary technologies that are patentable;
     
  the patents of others may harm our business; and
     
  we may choose not to file a patent for certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.

 

Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

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Even if we are able to obtain patent protection for our product candidates, the life of such protection, if any, is limited, and third parties could be able to circumvent our patents by developing similar or alternative products and technologies in a non-infringing manner, or develop and commercialize products and technologies similar or identical to ours and compete directly against us after the expiration of our patent rights, if any, and our ability to successfully commercialize any product or technology would be materially adversely affected.

 

The life of a patent and the protection it affords is limited. For example, in China, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its filing date. Even if we successfully obtain patent protection for an approved product candidate, it may face competition from generic or biosimilar medications. Manufacturers of generic or biosimilar drugs may challenge the scope, validity or enforceability of our patents in court or before a patent office, and we may not be successful in enforcing or defending those intellectual property rights and, as a result, may not be able to develop or market the relevant product exclusively, which would materially adversely affect any potential sales of that product.

 

General SenlangBio-Related Risks

 

If SenlangBio is not successful in attracting and retaining highly qualified personnel, it may not be able to successfully implement its business strategy. In addition, the loss of the services of certain key employees, including, Jianqiang Li, Ph.D., SenlangBio’s Scientific Founder and Chief Scientific Officer and Shengmin Guo, Co-founder and Chief Executive Officer, would adversely impact SenlangBio’s business prospects.

 

SenlangBio’s ability to compete in the highly competitive pharmaceuticals industry depends in large part upon its ability to attract highly qualified managerial, scientific and medical personnel.

 

SenlangBio’s management team has expertise in many different aspects of drug development and commercialization. However, it will need to hire additional personnel as it further develops its product candidates. Competition for skilled personnel in China is intense and competition for experienced scientists may limit SenlangBio’s ability to hire and retain highly qualified personnel on acceptable terms. Despite its efforts to retain valuable employees, members of its management, scientific and medical teams may terminate their employment with SenlangBio on short notice (30 days under PRC law). SenlangBio entered into an employment agreement with Dr. Li on September 1, 2017. The loss of the services of any of SenlangBio’s executive officers or other key employees could potentially harm its business, operating results or financial condition. In particular, SenlangBio believes that the loss of the services of Dr. Li and Ms. Guo would have a material adverse effect on its business. SenlangBio’s success also depends on its ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior scientific and medical personnel.

 

Other biopharmaceutical companies with which SenlangBio competes for qualified personnel have greater financial and other resources, different risk profiles, and a longer history in the industry than it does. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what SenlangBio has have to offer. If SenlangBio is unable to continue to attract and retain high-quality personnel, the rate and success at which it can develop and commercialize product candidates would be limited.

 

Risks Related to the VIE Structure and SenlangBio being a PRC Domestic Entity

 

The business of SenlangBio may fall into the prohibited foreign investment category under currently effective PRC laws.

 

On March 15, 2019, the NPC promulgated the Foreign Investment Law, which took effect on January 1, 2020 and replaced three existing laws regulating foreign investment in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint VentureLaw and the Wholly Foreign-owned Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law grants foreign invested entities the same treatment as PRC domestic entities, except for those foreign invested entities that operate in industries deemed to be either “restricted” or “prohibited” in the “negative list” published by the State Council. Sen Lang is a BVI company and the PRC Subsidiary is currently considered to be a foreign invested entity.

 

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The latest version of the “negative list,” namely, the Special Management Measures (Negative List) for the Access of Foreign Investment (2019), which became effective on July 30, 2019, provides that foreign investment is prohibited in the development and application of genetic diagnosis and treatment technology. However, the PRC laws do not clarify the meaning of “development and application of genetic diagnosis and treatment technology” and do not explain whether transactions involving a VIE Structure should be considered as “investment” in the context of the prohibition of foreign investment. SenlangBio’s main business is conducting R&D and clinical transformation of immunotherapy cell therapy, which involves modifying the patient’s T-Cells genetically. Despite the foregoing lack of clarity, the applicable rules could be interpreted in a way unfavorable to the business of SenlangBio. First, in the context of law enforcement, if the competent PRC authorities and courts interpret “development and application of genetic diagnosis and treatment technology” broadly, the modification of T-Cells genetically could be considered as falling into the prohibited foreign investment category. Second, the newly implemented foreign investment law of China includes a catch-all definition of “foreign investment” that covers any other types of investment into China besides those listed in the law, which is generally believed as a strategy to leave room for the implementation of rules to address the VIE Structure. Therefore, the VIE Structure could be considered a violation of the applicable PRC laws.

 

There can be no assurance that the PRC government will ultimately take a view that is not contrary to Avalon and SenlangBio’s view that the parties are complying with PRC law. If SenlangBio’s CAR-T cell therapies or other technologies that are being researched and developed are deemed by relevant PRC regulatory agencies as falling into the category of “genetic diagnosis and treatment technology,” SenlangBio would be prohibited from engaging in the research or development of such technologies. In that event, Avalon and the Sen Lang Beneficial Shareholders would have to restructure Avalon’s control over SenlangBio. SenlangBio may also have to forfeit its income derived from the research and development of such technologies. Any of these occurrences may harm Avalon’s and SenlangBio’s business, prospects, financial condition and results of operations significantly.

 

The filing or change of the medical institution practice license of SenlangBio Clinical Laboratory may be affected by the VIE Structure.

 

As SenlangBio Clinical Laboratory is a medical institution under the PRC laws, its operation is subject to the PRC regulation of foreign investment in the area of medical institution, which provides that a foreign investor can acquire 70% (to the highest extent) of the equity interests in a PRC medical institution. The relevant PRC laws also provide that the related government authority shall not approve any application of licenses/permits if the application is related to a company failing to comply with PRC foreign investment regulation.

 

Therefore, if the competent PRC authority responsible for the registration of the medical institution practice license of SenlangBio Clinical Laboratory adopts a broad understanding of foreign investment rules that controlling via agreements can be deemed as a way of investment, the authority may disapprove SenlangBio Clinical Laboratory’s application in relation to its medical institution practice license, including any extension of such license. In the worst case, theoretically, the competent authorities may deem the VIE Agreements unenforceable because they are in violation of the PRC laws. In that event, SenlangBio Clinical Laboratory would not be qualified to conduct any business of testing of immunology, serology and molecular genetics specialties for patients, including hematology-tumor diagnostics and testing prior to clinical trials for cell therapy, which would result in the loss of the license and thereby the loss of income to SenlangBio from this business.

 

Risks Related to the Acquisition

 

The amount of Acquisition Shares being issued to the Sen Lang Shareholders will not be adjusted in the event of any change in Avalon’s stock price.

 

The aggregate number of Acquisition Shares being issued to the Sen Lang Shareholders is fixed. Therefore, the total value of the Acquisition Shares will depend on the market price of the Avalon Common Stock at the closing of the Acquisition.

 

The market price of the Avalon Common Stock has fluctuated in the past, may fluctuate upon the announcement of the Purchase Agreement and may continue to fluctuate through the closing of the Acquisition and thereafter. The total market value of the Acquisition Shares to be issued at the closing will not be known until that time. Therefore, current and historical market prices of Avalon Common Stock may not reflect the value that the Sen Lang Shareholders will receive in the Acquisition, and the current stock price quotations for Avalon Common Stock may not provide meaningful information to Avalon stockholders. Avalon Common Stock is traded on The Nasdaq Capital Market under the symbol “AVCO.” Changes in the market price of Avalon Common Stock may result from a variety of factors that are beyond the control of Avalon, including changes in its business, operations and prospects, regulatory considerations, governmental actions, and legal proceedings and developments. You are urged to obtain up-to-date prices for Avalon Common Stock.

 

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Failure to complete the Acquisition could negatively impact the stock price and the future business and financial results of Avalon.

 

The parties’ respective obligations to complete the Acquisition are subject to the satisfaction or waiver of a number of conditions set forth in the Purchase Agreement and described elsewhere in this proxy statement. There can be no assurance that the conditions to completion of the Acquisition will be satisfied or waived or that the Acquisition will be completed. If the Acquisition is not completed for any reason, the ongoing business of Avalon may be materially and adversely affected and, without realizing any of the benefits of having completed the Acquisition, Avalon would be subject to a number of risks, including the following:

 

  Avalon may experience negative reactions from the financial markets, including negative impacts on the trading price of Avalon Common Stock, which could affect Avalon’s ability to secure sufficient financing in the future on attractive terms (or at all), and from its customers, vendors, regulators and employees;
     
  Avalon will be required to pay its expenses incurred in connection with the Acquisition, whether or not the Acquisition is completed;
     
  matters relating to the Acquisition (including integration planning) will require substantial commitments of time and resources by Avalon management and the expenditure of significant funds in the form of fees and expenses, which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to Avalon otherwise.

 

If any of these risks materialize, they may materially and adversely affect Avalon’s business, financial condition, financial results and stock prices.

 

The Acquisition is subject to a number of closing conditions and, if these conditions are not satisfied, the Purchase Agreement may be terminated in accordance with its terms and the Acquisition may not be completed. In addition, the parties have the right to terminate the Purchase Agreement under other specified circumstances, in which case the Acquisition would not be completed.

 

The Acquisition is subject to a number of closing conditions and, if these conditions are not satisfied or waived (to the extent permitted by law), the Acquisition will not be completed. These conditions include, among others: (i) the absence of certain legal impediments, (ii) obtaining all governmental authorizations, (iii) obtaining the Avalon stockholders’ approval, (iv) the consummation of the Equity Financing, (v) the execution of the VIE Agreements and (vi) the listing of the Acquisition Shares and the Exchange Shares on Nasdaq. In addition, each party’s obligation to complete the Acquisition is subject to the accuracy of the other parties’ representations and warranties in the Purchase Agreement (subject in most cases to “material adverse effect” qualifications), the other parties’ compliance, in all material respects, with their respective covenants and agreements in the Purchase Agreement.

 

The conditions to the closing may not be fulfilled and, accordingly, the Acquisition may not be completed. In addition, if the Acquisition is not completed by December 31, 2021, any party may choose not to proceed with the Acquisition. Moreover, the parties can mutually decide to terminate the Purchase Agreement at any time prior to the consummation of the Acquisition, before or after receipt of the Avalon stockholders’ approval and each party may elect to terminate the Purchase Agreement in certain other circumstances, as described in the Purchase Agreement.

 

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There can be no assurance that Avalon will be able to complete the Equity Financing.

 

It is a condition to closing of the Acquisition that the Equity Financing shall have been consummated prior to or contemporaneously with the closing. The closing of the Equity Financing pursuant to the OpCo Capital Increase Agreement is subject to various conditions to closing, as well as the risk that the Investor does not abide by the terms of the OpCo Capital Increase Agreement. If the Equity Financing does not close for any reason, Avalon would need to waive or agree to amend the applicable condition to closing of the Acquisition. In addition, if the Equity Financing was not consummated and the Acquisition closed nevertheless, Avalon may not have sufficient capital for all planned expenses of the post-Acquisition company, and would likely need to raise additional capital. In such event, Avalon would likely seek to sell common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt financing. The sale of equity and convertible debt securities may result in dilution to our stockholders and certain of those securities may have rights senior to those of the holders of Avalon Common Stock. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict its operations, fund raising capabilities or otherwise. The source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress of our clinical development programs following the Acquisition. Funding may not be available when needed, at all, or on terms acceptable to us. Lack of necessary funds may require us among other things, to delay, scale back or eliminate some or all of our planned clinical trials.

 

Avalon may not realize the anticipated benefits of the Acquisition.

 

While Avalon will continue to operate as in the past until the completion of the Acquisition, the success of the Acquisition will depend, in part, on Avalon’s ability to realize the anticipated benefits acquiring Sen Lang’s business. Avalon’s ability to realize these anticipated benefits is subject to certain risks, including, among others:

 

  Avalon’s ability to successfully integrate the Sen Lang business;
     
  the risk that Sen Lang’s business will not perform as expected;
     
  the extent to which the parties will be able to realize the expected synergies, which include taking advantage of Sen Lang’s manufacturing and laboratory facilities and geographic location in Northern China;
     
  the possibility that the aggregate consideration being paid for Sen Lang is greater than the value Avalon will derive from the Acquisition;
     
  the reduction of cash available for operations and other uses;
     
  the assumption of known and unknown liabilities of Sen Lang; and
     
  the possibility of costly litigation challenging the Acquisition.

 

Integrating Avalon’s and Sen Lang’s businesses may be more difficult, time-consuming or costly than expected.

 

Avalon and Sen Lang have operated and, until completion of the Acquisition will continue to operate, independently, and there can be no assurances that their businesses can be integrated successfully. It is possible that the integration process could result in the loss of key employees, the disruption of either company’s or both companies’ ongoing businesses or unexpected integration issues, such as higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. Specifically, issues that must be addressed in integrating the operations of Avalon and Sen Lang in order to realize the anticipated benefits of the Acquisition so the business performs as expected include, among others:

 

  combining the companies’ separate operational, financial, reporting and corporate functions;

 

  integrating the companies’ technologies, products and services;
     
  identifying and eliminating redundant and underperforming operations and assets;

 

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  harmonizing the companies’ operating practices, employee development, compensation and benefit programs, internal controls and other policies, procedures and processes;
     
  addressing possible differences in corporate cultures and management philosophies;
     
  maintaining employee morale and retaining key management and other employees;
     
  attracting and recruiting prospective employees;
     
  consolidating the companies’ corporate, administrative and information technology infrastructure;
     
  coordinating sales, distribution and marketing efforts;
     
  managing the movement of certain businesses and positions to different locations;
     
  maintaining existing agreements with customers and vendors and avoiding delays in entering into new agreements with prospective customers and vendors;
     
  coordinating geographically dispersed organizations; and
     
  effecting potential actions that may be required in connection with obtaining regulatory approvals.

 

In addition, at times, the attention of certain members of each company’s management and each company’s resources may be focused on completion of the Acquisition and the integration of the businesses of the two companies and diverted from day-to-day business operations, which may disrupt each company’s ongoing business and, consequently, the business of the Company.

 

Avalon and Sen Lang will be subject to business uncertainties and contractual restrictions while the Acquisition is pending.

 

Uncertainty about the effect of the Acquisition on employees, vendors and customers may have an adverse effect on Avalon or Sen Lang and consequently on us after the closing of the Acquisition. These uncertainties may impair Avalon’s and Sen Lang’s ability to retain and motivate key personnel and could cause customers and others that deal with Avalon and Sen Lang, as applicable, to defer or decline entering into contracts with Avalon or Sen Lang, as applicable, or making other decisions concerning Avalon or Sen Lang, as applicable, or seek to change existing business relationships with Avalon or Sen Lang, as applicable. In addition, if key employees depart because of uncertainty about their future roles and the potential complexities of the Acquisition, Avalon’s and Sen Lang’s businesses could be harmed. Furthermore, the Purchase Agreement places certain restrictions on the operation of Avalon’s and Sen Lang’s businesses prior to the closing of the Acquisition, which may delay or prevent Avalon and Sen Lang from undertaking certain actions or business opportunities that may arise prior to the consummation of the Acquisition. Please see the section entitled “The Purchase Agreement—Covenants; Conduct of Business Pending the Acquisition” for a description of the restrictive covenants applicable to Avalon and Sen Lang.

 

Third parties may terminate or alter existing contracts or relationships with Avalon or Sen Lang.

 

Each of Avalon and Sen Lang has contracts with customers, vendors and other business partners which may require Avalon or Sen Lang, as applicable, to obtain consents from these other parties in connection with the Acquisition. If these consents cannot be obtained, the counterparties to these contracts and other third parties with which Avalon and/or Sen Lang currently have relationships may have the ability to terminate, reduce the scope of or otherwise materially adversely alter their relationships with either party in anticipation of the Acquisition, or with us following the Acquisition. The pursuit of such rights may result in Avalon and Sen Lang suffering a loss of potential future revenue, incurring liabilities in connection with a breach of such agreements or losing rights that are material to its business. Any such disruptions could limit our ability to achieve the anticipated benefits of the Acquisition. The adverse effect of such disruptions could also be exacerbated by a delay in the completion of the Acquisition or the termination of the Acquisition.

 

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Avalon or Sen Lang may waive one or more of the closing conditions to the Acquisition without re-soliciting stockholder approval.

 

Each of Avalon and Sen Lang has the right to waive certain of the closing conditions to the Acquisition. Any such waiver may not require re-solicitation of stockholders, in which case stockholders of Avalon will not have the chance to change their votes as a result of any such waiver and Avalon will have the ability to complete the Acquisition without seeking further stockholder approval. Any determination whether to waive any condition to the Acquisition, whether stockholder approval would be re-solicited as a result of any such waiver or whether the proxy statement would be amended as a result of any waiver will be made Avalon at the time of such waiver based on the facts and circumstances as they exist at that time, and any such waiver could have an adverse effect on us.

 

Avalon’s stockholders will have a reduced ownership and voting interest after the Acquisition and the Equity Financing and will exercise less influence over management.

 

After the completion of the Acquisition and the Equity Financing, Avalon’s stockholders will own a smaller percentage of the Company than they currently own. Upon completion of the Acquisition, it is expected that Avalon stockholders will own 51.0% of the total voting shares outstanding of Avalon, and the Sen Lang Shareholders will own 49.0% of the total voting shares outstanding of Avalon, in each case immediately after consummation of the Acquisition and not giving effect to the closing of the Equity Financing. As of the result of the Equity Financing and depending on the amount of shares of OpCo that the Investor elects to exchange for shares of Avalon Common Stock pursuant to the terms of the Exchange Agreement, the percentages set forth above will be reduced proportionately by the Exchange Shares. Consequently, Avalon stockholders, as a group, will have reduced ownership and voting power in us compared to their current ownership and voting power in Avalon and, therefore, will be able to exercise less collective influence over the management and policies of Avalon than they currently exercise.

 

Executive officers and directors of Avalon may have interests in the Acquisition that are different from, or in addition to, the rights of Avalon stockholders.

 

Executive officers of Avalon negotiated the terms of the Purchase Agreement, and the Avalon board of directors approved the Purchase Agreement and the Acquisition. These executive officers and directors may have interests in the Acquisition that are different from, or in addition to, the Avalon stockholders. These interests include the continued employment of certain executive officers of Avalon following the Acquisition, the continued service of certain directors following the Acquisition and the indemnification of Avalon executive officers and directors by Avalon. Avalon stockholders should be aware of these interests when they consider their board of directors’ recommendation that stockholders vote in favor of the Avalon Proposals. For a description of the interests of Avalon’s executive officers and directors in the Acquisition, please see the section entitled “The Acquisition—Interests of Avalon’s Directors and Officers in the Acquisition.”

 

Any issuance of Exchange Shares could cause dilution to then existing Avalon stockholders and may depress the market price of Avalon Common Stock, and the amount of Exchange Shares issuable is impacted by the RMB to US dollar exchange rate at the time of an exchange.

 

Under the Exchange Agreement, the Investor shall have the right, exercisable following the six month anniversary of the closing of the Acquisition and until the five year anniversary of the closing of the Acquisition, to elect to exchange, from time to time, all or part of its equity ownership of the OpCo for Exchange Shares of Avalon at an effective exchange price of $1.21 per share of Avalon Common Stock. Following the completion of the financing and assuming the full funding by the investor in the financing, the aggregate number of shares of Avalon Common Stock that would be issuable under the Exchange Agreement (assuming the exchange of all shares) would be approximately 25,885,000 (using the conversion rate of US dollars to RMB of 6.3856 as of June 11, 2021). The issuance of Exchange Shares could result in immediate and substantial dilution to the interests of holders of Avalon Common Stock at the time of any exchanges.

 

In addition, the Investor is entitled to receive a number of Exchange Shares equal to the portion of the Subscription Amount (which is measured in RMB) being exchanged (i) converted into US dollars at the RMB exchange rate on the date of the exchange notice and (ii) divided by the exchange price of $1.21. Therefore, the amount of Exchange Shares issuable upon exchanges of equity of the OpCo may vary based on changes in the RMB-US dollar exchange rate during the period in which exchanges may be made under the Exchange Agreement.

 

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Avalon and Sen Lang may have difficulty attracting, motivating and retaining executives and other key employees in light of the proposed Acquisition.

 

Our success after the Acquisition will depend in part on each of Avalon’s and Sen Lang’s ability to retain key executives and other employees. Uncertainty about the effect of the Acquisition on Avalon’s and Sen Lang’s employees may have an adverse effect on each company separately and consequently, the combined business. This uncertainty may impair our ability to attract, retain and motivate key personnel. Employee retention may be particularly challenging during the pendency of the Acquisition, as Avalon’s and Sen Lang’s employees may experience uncertainty about their future roles in the combined business.

 

Furthermore, if any of Avalon or Sen Lang’s key employees depart or are at risk of departing, including because of issues relating to the uncertainty and difficulty of integration, financial security or a desire not to become employees of the combined business, Avalon or Sen Lang, as applicable, may have to incur significant costs in retaining such individuals or in identifying, hiring and retaining replacements for departing employees and may lose significant expertise and talent, and our ability to realize the anticipated benefits of the Acquisition may be materially and adversely affected. No assurance can be given that we will be able to attract or retain key employees to the same extent that Avalon or Sen Lang has been able to attract or retain employees in the past.

 

Avalon and Sen Lang will incur significant transaction and Acquisition-related transition costs in connection with the Acquisition.

 

Avalon and Sen Lang expect that they will incur significant, non-recurring costs in connection with consummating the Acquisition and integrating the operations of the two companies post-closing. Avalon and/or Sen Lang may incur additional costs to retain key employees. Avalon and/or Sen Lang will also incur significant fees and expenses relating to financing arrangements and legal services (including any costs that would be incurred in defending against any potential class action lawsuits and derivative lawsuits in connection with the Acquisition if any such proceedings are brought), accounting and other fees and costs, associated with consummating the Acquisition. Some of these costs are payable regardless of whether the Acquisition is completed. Though Avalon and Sen Lang continue to assess the magnitude of these costs, additional unanticipated costs may be incurred in the Acquisition and the integration of the businesses of Avalon and Sen Lang.

 

The unaudited pro forma financial information included in this proxy statement is preliminary and our actual financial position or results of operations after the Acquisition may differ materially.

 

The unaudited pro forma financial information in this proxy statement is presented for illustrative purposes only and is not necessarily indicative of what our actual financial position or results of operations would have been had the Acquisition been completed on the dates indicated. The unaudited pro forma financial information reflects adjustments, which are based upon estimates, to allocate the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed, based on their estimated acquisition-date fair values. The purchase price allocation reflected in this document is preliminary, and a final determination of the fair value of assets acquired and liabilities assumed will be based on the actual net tangible and intangible assets and liabilities of Sen Lang that existed as of the date of the completion of the Acquisition. Accordingly, the final purchase accounting adjustments may differ materially from the pro forma information reflected in this proxy statement. For more information, please see the section entitled “Unaudited Pro Forma Condensed Combined Financial Information.”

 

Avalon may be the target of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the Acquisition from being completed.

 

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on Avalon’s liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Acquisition, then that injunction may delay or prevent the Acquisition from being completed, which may adversely affect Avalon’s business, financial position and results of operations. As of the date of this proxy statement, no such lawsuits have been filed in connection with the Acquisition and we cannot predict whether any will be filed.

 

32

 

 

The lack of a public market for Sen Lang shares makes it difficult to determine the fair market value of the Sen Lang shares, and Avalon may pay more than the fair market value of the Sen Lang shares.

 

Sen Lang is privately held and its share capital is not traded in any public market. The lack of a public market makes it extremely difficult to determine Sen Lang’s fair market value. Because the percentage of Avalon’s equity to be issued to the Sen Lang Shareholders was determined based on negotiations between the parties, it is possible that Avalon may pay more than the aggregate fair market value for Sen Lang.

 

Additional Risks Relating to the Post-Acquisition Company after Completion of the Acquisition

 

The post-Acquisition company will be subject to the risks that each of Avalon and Sen Lang faces.

 

Following completion of the Acquisition, the post-Acquisition company will be subject to numerous risks and uncertainties, including the risks faced by each of Avalon and Sen Lang, which are described in the sections of this proxy statement entitled “Risk Factors—Risks Related to SenlangBio” and entitled “Risk Factors—Risks Related to Avalon.” If any such risks actually occur, the business, financial condition, results of operations or cash flows of the post-Acquisition company could be materially adversely affected.

 

The market price for shares of Avalon Common Stock may be affected by factors different from those affecting the market price for Sen Lang Shares.

 

Upon completion of the Acquisition, holders of Sen Lang Shares will become holders of Avalon Common Stock. Avalon’s and Sen Lang’s respective businesses differ, and accordingly the results of operations of the post-Acquisition company, and the market price of the common stock of the post-Acquisition company, will be affected by factors different from those currently affecting the results of operations of Avalon and Sen Lang. For a discussion of the businesses of Avalon and Sen Lang and of certain factors to consider in connection with those businesses, please see the sections entitled “Information About Sen Lang,” “Information About Avalon,“Risk Factors—Risks Related to SenlangBio” and “Risk Factors—Risks Related to Avalon.

 

The market price for shares of Avalon Common Stock may decline as a result of the Acquisition, including as a result of some Avalon stockholders adjusting their portfolios.

 

The market value of Avalon Common Stock at the time of consummation of the Acquisition may vary significantly from the price of Avalon Common Stock on the date the Purchase Agreement was executed, the date of this proxy statement and the date of the Avalon annual meeting. Following consummation of the Acquisition, the market price of Avalon Common Stock may decline if, among other things, the costs related to the Acquisition are greater than expected, Avalon does not achieve the perceived benefits of the Acquisition as rapidly or to the extent anticipated by financial or industry analysts or the effect of the Acquisition on Avalon’s financial position, results of operations or cash flows is not consistent with the expectations of financial or industry analysts.

 

In addition, sales of Avalon Common Stock by Avalon’s stockholders after the completion of the Acquisition may cause the market price of Avalon Common Stock to decrease. Based on the number of shares of Avalon Common Stock outstanding as of June 30, 2021, the latest practicable date before the date of this proxy statement, 166,080,919 shares of Avalon Common Stock are expected to be issued and outstanding immediately after the closing of the Acquisition (not taking into account any Exchange Shares that may be issued following the six month anniversary of the closing). Many Avalon stockholders and former Sen Lang Shareholders may decide not to hold the shares of Avalon Common Stock that they receive in the Acquisition. Other Avalon stockholders, such as funds with limitations on their permitted holdings of stock in individual issuers, may be required to sell the shares of Avalon Common Stock that they receive in the Acquisition. Such sales of Avalon Common Stock could have the effect of depressing the market price for Avalon Common Stock and may take place promptly following the closing of the Acquisition.

 

Any of these events may make it more difficult for Avalon to sell equity or equity-related securities, dilute your ownership interest in Avalon and have an adverse impact on the price of Avalon Common Stock.

 

33

 

 

Avalon does not expect to declare any cash dividends in the foreseeable future.

 

After the completion of the Acquisition, Avalon does not anticipate declaring any cash dividends to holders of Avalon Common Stock in the foreseeable future. Consequently, investors may need to rely on sales of their shares after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

 

The Acquisition may not be accretive, and may be dilutive, to the post-Acquisition company’s earnings per share, which may negatively affect the market price of shares of Avalon Common Stock.

 

Avalon currently believes the Acquisition will result in a number of benefits, including (i) a diverse pipeline of cell therapy product candidates, (ii) expanded footprint in China, (iii) operational synergies and (iv) an experienced management team, and that the Acquisition will be accretive to the post-Acquisition company’s earnings. This belief is based, in part, on preliminary current estimates that may materially change. In addition, future events and conditions, including adverse changes in market conditions, additional transaction and integration-related costs and other factors such as the failure to realize some or all of the anticipated benefits of the Acquisition, could decrease or delay the accretion that is currently anticipated or could result in dilution. Any dilution of, or decrease in or delay of any accretion to, the post-Acquisition company’s earnings per share could cause the price of shares of Avalon Common Stock to decline or grow at a reduced rate.

 

Risks Related to Avalon

 

An investment in Avalon Common Stock involves a high degree of risk. In determining whether to purchase Avalon Common Stock, an investor should carefully consider all of the material risks described below, together with the other information contained in this proxy statement before making a decision to purchase Avalon’s securities.

 

Avalon is, and will continue to be, subject to the risks described in Part I, Item 1A in Avalon’s Annual Report on Form 10-K for the year ended December 31, 2020, which Annual Report is being sent to stockholders together with this proxy statement.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

On June 13, 2021, Avalon entered into a share purchase agreement (the “Purchase Agreement”) with Senlang. Pursuant to the Purchase Agreement, subject to the satisfaction of the conditions to closing, including approval by the Avalon stockholders pursuant to the rules of the Nasdaq Stock Market, Avalon will acquire all of the issued and outstanding securities of Senlang in consideration of 81,000,000 shares of Avalon common stock. The following unaudited pro forma consolidated combined financial statements present the historical consolidated financial statements of Avalon GloboCare Corp. and Subsidiaries (“Avalon”) and the historical consolidated financial statements of Lonlon Biotech Ltd. and Subsidiaries (“Senlang”), adjusted as if Avalon had acquired Senlang.

 

The unaudited pro forma consolidated combined balance sheet combines the historical consolidated balance sheet of Avalon and the historical consolidated balance sheet of Senlang as of March 31, 2021, giving effect to the acquisition as if they had been consummated on March 31, 2021. The unaudited pro forma consolidated combined statement of operations and comprehensive loss for the three months ended March 31, 2021 combines the historical consolidated statement of operations and comprehensive loss of Avalon and the historical consolidated statement of operations and comprehensive loss of Senlang, giving effect to the acquisition as if they had been consummated on January 1, 2020, the beginning of the earliest period presented. The unaudited pro forma consolidated combined statement of operations and comprehensive loss for the year ended December 31, 2020 combines the historical consolidated statement of operations and comprehensive loss of Avalon and the historical consolidated statement of operations and comprehensive loss of Senlang, giving effect to the acquisition as if they had been consummated on January 1, 2020, the beginning of the earliest period presented. The historical consolidated financial statements have been adjusted in the unaudited pro forma consolidated combined financial statements to give pro forma effect to events that are: (1) directly attributable to the acquisition; (2) factually supportable; and (3) with respect to the statement of operations, expected to have a continuing impact on Avalon’s results following the completion of the acquisition.

 

The unaudited pro forma consolidated combined financial statements have been developed from and should be read in conjunction with:

 

The accompanying notes to the unaudited pro forma consolidated combined financial statements;

 

The historical consolidated financial statements and related notes of Avalon as of March 31, 2021, for the three months ended March 31, 2021 and for the year ended December 31, 2020, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in Avalon’s Quarterly Report on Form 10Q for the three months ended March 31, 2021 and Annual Report on Form 10-K for the year ended December 31, 2020, which were filed with the Securities and Exchange Commission; and

 

The historical consolidated financial statements of Senlang as of March 31, 2021 and for the three months ended March 31, 2021 and for the year ended December 31, 2020, which are contained elsewhere in this Form 8-K/A.

 

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AVALON GLOBOCARE CORP. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED COMBINED BALANCE SHEET

As of March 31, 2021

 

    Historical     Pro Forma  
    Avalon     Lonlon                            
    GloboCare Corp.     Biotech Ltd.     Pro Forma Adjustments         Pro Forma  
    and Subsidiaries     and Subsidiaries     Dr.         Cr.         Combined  
                                       
ASSETS                                      
                                       
CURRENT ASSETS:                                      
Cash   $ 1,692,540     $ 188,887     $ -         $ -         $ 1,881,427  
Accounts receivable     -       636,746       -           -           636,746  
Rent receivable     23,471       -       -           -           23,471  
Deferred financing costs     152,438       -       -           -           152,438  
Recoverable VAT     -       343,755       -           343,755     a     -  
Inventory     -       105,743       -           105,743     a     -  
Prepaid expenses and other current assets     295,731       60,949       449,498     a     -           806,178  
                                                 
Total Current Assets     2,164,180       1,336,080       449,498           449,498           3,500,260  
                                                 
NON-CURRENT ASSETS:                                                
Rent receivable - noncurrent portion     109,174       -       -           -           109,174  
Security deposit     19,662       49,843       -           -           69,505  
Deferred leasing costs     133,359       -       -           -           133,359  
Operating lease right-of-use assets, net     241,729       266,406       -           -           508,135  
Property and equipment, net     439,962       2,268,076       -           -           2,708,038  
Investment in real estate, net     7,644,950       -       -           -           7,644,950  
Equity method investment     532,199       -       -           -           532,199  
Intangible assets     -       -       97,556,672     b     -           97,556,672  
                                                 
Total Non-current Assets     9,121,035       2,584,325       97,556,672           -           109,262,032  
                                                 
Total Assets   $ 11,285,215     $ 3,920,405     $ 98,006,170         $ 449,498         $ 112,762,292  
                                                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                                                
                                                 
CURRENT LIABILITIES:                                                
Accrued professional fees   $ 1,445,225     $ -     $ -         $ 650,000      d   $ 2,095,225  
Accrued research and development fees     432,500       -       -           -           432,500  
Accrued payroll liability and directors’ compensation     165,846       102,329       -           -           268,175  
Accounts payable     -       564,192       564,192     e     -           -  
Accrued leasehold improvements liabilities     -       261,106       261,106     e     -           -  
Accrued liabilities and other payables     344,453       62,938       -           1,175,995      e     1,583,386  
Notes payable     -       1,373,480       -           -           1,373,480  
Accrued liabilities and other payables - related parties     313,105       -       -           -           313,105  
Deferred revenue     -       167,201       167,201     e     -           -  
Deferred grant income     -       183,496       183,496     e     -           -  
Operating lease obligation     132,657       151,167       -           -           283,824  
Note payable - related party     390,000       244,174       -           -           634,174  
                                                 
Total Current Liabilities     3,223,786       3,110,083       1,175,995           1,825,995           6,983,869  
                                                 
NON-CURRENT LIABILITIES:                                                
Deferred grant income - noncurrent portion     -       304,617       -           -           304,617  
Operating lease obligation - noncurrent portion     109,337       52,377       -           -           161,714  
Loan payable - related party     3,305,249       -       -           -           3,305,249  
                                                 
Total Non-current Liabilities     3,414,586       356,994       -           -           3,771,580  
                                                 
Total Liabilities     6,638,372       3,467,077       1,175,995           1,825,995           10,755,449  
                                                 
SHAREHOLDERS’ EQUITY:                                                
Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding     -       -       -           -           -  
Common stock, $0.0001 par value; 490,000,000 shares authorized; 84,943,564 shares issued and 84,423,564 shares outstanding 165,943,564 pro forma shares issued and 165,423,564 pro forma shares outstanding     8,494       -       -           8,100      b     16,594  
Additional paid-in capital     49,755,996       8,946,197       8,946,197         98,001,900      b     147,757,896  
Ordinary shares     -       10,001       10,001     c     -           -  
Less: common stock held in treasury, at cost; 520,000 shares     (522,500 )     -       -           -           (522,500 )
Accumulated deficit     (44,408,493 )     (8,515,294 )     650,000     d     8,515,294      c     (45,058,493 )
Statutory reserve     6,578       -       -           -           6,578  
Accumulated other comprehensive (loss) income     (193,232 )     12,424       12,424     c     -           (193,232 )
                                                 
Total shareholders’ equity     4,646,843       453,328       9,618,622           106,525,294           102,006,843  
                                                 
Total Liabilities and Shareholders’ Equity   $ 11,285,215     $ 3,920,405     $ 10,794,617         $ 108,351,289         $ 112,762,292  

 

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AVALON GLOBOCARE CORP. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED COMBINED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS

Three Months Ended March 31, 2021

 

   Historical   Pro Forma 
   Avalon   Lonlon            
   GloboCare Corp.   Biotech Ltd.   Pro Forma Adjustments      Pro Forma 
   and Subsidiaries   and Subsidiaries   Dr.      Cr.      Combined 
REVENUES                          
Real property rental  $289,774   $-   $-      $-      $289,774 
General laboratory testing   -    945,648    -       -       945,648 
Immunology and hematology testing   -    301,857    -       -       301,857 
Total Revenues   289,774    1,247,505    -       -       1,537,279 
                                
COSTS AND EXPENSES                               
Real property operating expenses   216,894    -    -       -       216,894 
General laboratory testing   -    347,911    -       -       347,911 
Immunology and hematology testing   -    89,498    -       -       89,498 
Total Costs and Expenses   216,894    437,409    -       -       654,303 
                                
Real Property Opearting Income   72,880    -    -       -       72,880 
Gross Profit from General Laboratory Testing   -    597,737    -       -       597,737 
Gross Profit from Immunology and Hematology Testing   -    212,359    -       -       212,359 
Total Gross Profit   72,880    810,096    -       -       882,976 
                                
OTHER OPERATING EXPENSES:                               
Professional fees   1,381,178    -    24,041   a   -       1,405,219 
Compensation and related benefits   562,006    -    86,204   a   -       648,210 
Research and development expenses   213,188    565,331    -       -       778,519 
General and administrative expenses   -    406,188    -       406,188   a   - 
Other general and administrative expenses   220,096    -    295,943   a   -       516,039 
Selling and marketing expenses   -    52,707    -       -       52,707 
Amortization   -    -    2,439,000   c   -       2,439,000 
Grant income   -    (123,467)   -       -       (123,467)
                                
Total Other Operating Expenses   2,376,468    900,759    2,845,188       406,188       5,716,227 
                                
LOSS FROM OPERATIONS   (2,303,588)   (90,663)   (2,845,188)      (406,188)      (4,833,251)
                                
OTHER (EXPENSE) INCOME                               
Interest expense   -    (13,647)   -       -       (13,647)
Interest expense - related party   (45,149)   (2,683)   -       -       (47,832)
Loss from equity method investment   (18,514)   -    -       -       (18,514)
Other income   133    226    -       -       359 
                                
Total Other Expense, net   (63,530)   (16,104)   -       -       (79,634)
                                
LOSS BEFORE INCOME TAXES   (2,367,118)   (106,767)   (2,845,188)      (406,188)      (4,912,885)
                                
INCOME TAXES   -    28,513    -       -       28,513 
                                
NET LOSS  $(2,367,118)  $(135,280)  $(2,845,188)     $(406,188)     $(4,941,398)
                                
COMPREHENSIVE LOSS:                               
NET LOSS  $(2,367,118)  $(135,280)  $(2,845,188)     $(406,188)     $(4,941,398)
OTHER COMPREHENSIVE LOSS                               
Unrealized foreign currency translation loss   (2,722)   (577)   -       -       (3,299)
COMPREHENSIVE LOSS  $(2,369,840)  $(135,857)  $(2,845,188)     $(406,188)     $(4,944,697)
                                
NET LOSS PER COMMON SHARE:                               
Basic and diluted  $(0.03)                       $(0.03) b
                                
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                               
Basic and diluted   83,413,154                         164,413,154 

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AVALON GLOBOCARE CORP. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED COMBINED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS

Year Ended December 31, 2020

 

   Historical   Pro Forma 
   Avalon   Lonlon                   
   GloboCare Corp.   Biotech Ltd.   Pro Forma Adjustments      Pro Forma 
   and Subsidiaries   and Subsidiaries   Dr.      Cr.      Combined 
REVENUES                          
Real property rental  $1,206,854   $-   $-      $-      $1,206,854 
Medical related consulting services - related parties   170,908    -    -       -       170,908 
General laboratory testing   -    649,932    -       -       649,932 
Immunology and hematology testing   -    440,183    -       -       440,183 
Total Revenues   1,377,762    1,090,115    -       -       2,467,877 
                                
COSTS AND EXPENSES                               
Real property operating expenses   851,754    -    -       -       851,754 
Medical related consulting services - related parties   135,805    -    -       -       135,805 
General laboratory testing   -    343,794    -       -       343,794 
Immunology and hematology testing   -    197,444    -       -       197,444 
Total Costs and Expenses   987,559    541,238    -       -       1,528,797 
                                
Real Property Opearting Income   355,100    -    -       -       355,100 
Gross Profit from Medical Related Consulting Services   35,103    -    -       -       35,103 
Gross Profit from General Laboratory Testing   -    306,138    -       -       306,138 
Gross Profit from Immunology and Hematology Testing   -    242,739    -       -       242,739 
Total Gross Profit   390,203    548,877    -       -       939,080 
                                
OTHER OPERATING EXPENSES:                               
Professional fees   6,553,009    -    73,397   a   -       6,626,406 
Compensation and related benefits   4,156,150    -    292,439   a   -       4,448,589 
Research and development expenses   883,855    2,813,250    -       -       3,697,105 
General and administrative expenses   -    925,438    -       925,438   a   - 
Other general and administrative expenses   1,251,208    -    559,602   a   -       1,810,810 
Selling and marketing expenses   -    163,145    -       -       163,145 
Amortization   -    -    9,756,000   c   -       9,756,000 
Grant income   -    (929,505)   -       -       (929,505)
                                
Total Other Operating Expenses   12,844,222    2,972,328    10,681,438       925,438       25,572,550 
                                
LOSS FROM OPERATIONS   (12,454,019)   (2,423,451)   (10,681,438)      (925,438)      (24,633,470)
                                
OTHER (EXPENSE) INCOME                               
Interest expense   -    (12,397)   -       -       (12,397)
Interest expense - related party   (168,762)   (11,169)   -       -       (179,931)
Loss from equity method investment   (51,673)   -    -       -       (51,673)
Other (expense) income   (4,984)   4,654    -       -       (330)
                                
Total Other Expense, net   (225,419)   (18,912)   -       -       (244,331)
                                
LOSS BEFORE INCOME TAXES   (12,679,438)   (2,442,363)   (10,681,438)      (925,438)      (24,877,801)
                                
INCOME TAXES   -    -    -       -       - 
                                
NET LOSS  $(12,679,438)  $(2,442,363)  $(10,681,438)     $(925,438)     $(24,877,801)
                                
COMPREHENSIVE LOSS:                               
NET LOSS  $(12,679,438)  $(2,442,363)  $(10,681,438)     $(925,438)     $(24,877,801)
OTHER COMPREHENSIVE INCOME                               
Unrealized foreign currency translation gain   67,237    58,807    -       -       126,044 
COMPREHENSIVE LOSS  $(12,612,201)  $(2,383,556)  $(10,681,438)     $(925,438)     $(24,751,757)
                                
NET LOSS PER COMMON SHARE:                               
Basic and diluted  $(0.16)                       $(0.15) b
                                
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:                               
Basic and diluted   79,508,149                         160,508,149 

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[1] Basis of Pro Forma Presentation

 

The unaudited pro forma consolidated combined financial statements have been prepared assuming the acquisition is accounted for as a business combination using the acquisition method of accounting under Financial Accounting Standards Board (“FASB”) ASC 805, Business Combinations (“ASC 805”). For business combinations under ASC 805, acquisition-related transaction costs are not included as a component of consideration transferred but are accounted for as expenses in the periods in which such costs are incurred. Acquisition-related transaction costs include advisory, legal, accounting fee and others.

 

The unaudited pro forma consolidated combined financial statements reflect adjustments, based on available information and certain assumptions that Avalon believes are reasonable, attributable to the following:

 

  The acquisition of Senlang, which will be accounted for as a business combination, with Avalon identified as the acquirer, and the issuance of shares of Avalon common stock as acquisition consideration. Avalon is considered the accounting acquirer since immediately following the closing: (i) Avalon stockholders will own a majority of the voting rights of the combined company; (ii) Avalon will designate a majority (nine of ten) of the initial members of the board of directors of the combined company; (iii) Avalon’s senior management will hold the majority of the key positions in senior management of the combined company; and (iv) Avalon will continue to maintain its corporate headquarters in Freehold, New Jersey, United States. SenlangBio will continue to maintain operations in the Shijiazhuang High-tech Development Zone, Hebei Province, China;

 

Adjustments to conform the classification of certain assets and liabilities in Senlang’s historical consolidated balance sheet to Avalon’s classification for similar assets and liabilities;

 

Adjustments to conform the classification of expenses in Senlang’s historical consolidated statement of operations and comprehensive loss to Avalon’s classification for similar expenses; and

 

The incurrence of acquisition-related expenses.

 

The pro forma adjustments represent management’s estimates based on information available as of the date of this filing and are subject to change as additional information becomes available and additional analyses are performed. The pro forma financial statements are provided for illustrative purposes only and are not intended to represent what Avalon’s financial position or results of operations would have been had the acquisition actually been consummated on the assumed dates nor do they purport to project the future operating results or financial position of Avalon following the acquisition. The pro forma financial statements do not reflect future events that may occur after the acquisition, including, but not limited to, the anticipated realization of ongoing savings from potential operating efficiencies, cost savings, or economies of scale that Avalon may achieve with respect to the combined operations. Specifically, the pro forma statements of operations do not include the synergies expected to be achieved as a result of the acquisition and any associated costs that may be incurred to achieve the identified synergies. Additionally, Avalon cannot assure that additional charges will not be incurred in excess of those included in the pro forma additional legal, accounting, and advisory fees of $650,000 related to the acquisition, Avalon’s efforts to achieve operational synergies, or that management will be successful in its efforts to integrate the operations. The pro forma statement of operations also excludes the effects of costs associated with any restructuring and integration activities that may result from the acquisition. Further, the pro forma financial statements do not reflect the effect of any regulatory actions that may impact the results of Avalon following the acquisition.

 

Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma consolidated combined financial statements. In Avalon’s opinion, all adjustments that are necessary to present fairly the pro forma information have been made. The historical financial statements have been adjusted in the unaudited pro forma consolidated combined financial statements to give effect to the acquisition. These adjustments are directly attributable to the acquisition, factually supportable and, with respect to the unaudited pro forma consolidated combined statements of operations, expected to have a continuing impact on Avalon following the acquisition.

 

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[2] Pro Forma Adjustments and Assumptions

 

Pro Forma Adjustments to the Consolidated Balance Sheet at March 31, 2021:

 

a.Represents the reclassification of recoverable VAT and inventory into prepaid expenses and other current assets.

 

  b. Reflects the issuance of 81,000,000 shares of Avalon common stock at a price of $1.21 per share (which was the market price of the Avalon common stock as of the date of the Purchase Agreement under the rules of the Nasdaq Stock Market) as consideration for acquisition of Senlang and adjustments to state Senlang’s assets acquired and liabilities assumed at fair value. A summary of the consideration paid and the preliminary fair value of the assets acquired and liabilities assumed is as follows:

 

Preliminary consideration:    
Avalon common stock issued to Senlang shareholders   81,000,000 
Issued price  $1.21 
Total consideration  $98,010,000 
      
Preliminary fair value of assets acquired:     
Current assets     
Cash  $188,887 
Accounts receivable   636,746 
Recoverable VAT   343,755 
Inventory   105,743 
Other current assets   60,949 
Non-current assets     
Security deposit   49,843 
Operating lease right-of-use assets, net   266,406 
Property and equipment, net   2,268,076 
Intangible assets   97,556,672 
Total preliminary fair value of assets acquired  $101,477,077 
Preliminary fair value of liabilities assumed:     
Current liabilities     
Notes payable  $(1,373,480)
Notes payable - related party   (244,174)
Accounts payable   (564,192)
Salary payable   (102,329)
Accrued leasehold improvements liabilities   (261,106)
Accrued liabilities and other payables   (62,938)
Deferred revenue   (167,201)
Deferred grant income   (183,496)
Operating lease obligation   (151,167)
Non-current liabilities     
Deferred grant income - noncurrent portion   (304,617)
Operating lease obligation - noncurrent portion   (52,377)
Total preliminary fair value of liabilities assumed  $(3,467,077)
Net Assets acquired and liabilities assumed  $98,010,000 

 

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The acquisition consideration is allocated to the acquired assets and assumed liabilities based on their estimated fair values, and any excess is initially allocated to identifiable intangible assets mainly consisting of cell and gene engineering technologies with the ability to generate innovative and transformative cellular immunotherapies for solid and hematologic cancers. The purchase price exceeded the fair value of net assets acquired by $97,556,672. The Company allocated the $97,556,672 excess to intangible assets, which will be amortized over 10 years. The initial allocation is subject to change upon the final valuation which is to be done at the time of closing. Such change could have a material impact on the Company’s financial statements.

 

c.Represents the elimination of Senlang’s historical equity balances.

 

d.Represents the accrual of $650,000 in estimated legal, accounting, and advisory fees that are payable as a result of the acquisition of Senlang, which were not reflected in either Avalon’s or Senlang’s historical financial statements.

 

e.Represents the reclassification of accounts payable, accrued leasehold improvements liabilities, deferred revenue, deferred grant income into accrued liabilities and other payables.

 

Pro Forma Adjustments to the Consolidated Statement of Operations and Comprehensive Loss for the Three Months Ended March 31, 2021:

 

a.Represents a reclassification of general and administrative expenses into professional fees, compensation and related benefits, and other general and administrative expenses.

 

b.The pro forma basic and diluted net loss per common share was computed by dividing pro forma net loss attributable to Avalon by the historical weighted average number of shares of common stock outstanding after giving effect to the issuance of 81,000,000 shares of Avalon common stock in connection with the acquisition of Senlang, as if the issuance had been completed on January 1, 2020.

 

  c. Represents amortization of intangible assets acquired from this acquisition.

 

Pro Forma Adjustments to the Consolidated Statement of Operations and Comprehensive Loss for the Year Ended December 31, 2020:

 

a.Represents a reclassification of general and administrative expenses into professional fees, compensation and related benefits, and other general and administrative expenses.

 

b.The pro forma basic and diluted net loss per common share was computed by dividing pro forma net loss attributable to Avalon by the historical weighted average number of shares of common stock outstanding after giving effect to the issuance of 81,000,000 shares of Avalon common stock in connection with the acquisition of Senlang, as if the issuance had been completed on January 1, 2020.

 

  c. Represents amortization of intangible assets acquired from this acquisition.

 

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[3] Unaudited Pro Forma Adjustment Reflects the Following Two Transactions:

 

Transaction 1:

 

Intangible assets   97,556,672      
Paid-in capital   8,956,198      
Accumulated other comprehensive income   12,424      
Accumulated deficit        8,515,294 
Common stock        8,100 
Additional paid-in capital        98,001,900 

 

The transaction reflects (i) the elimination of Senlang’s historical equity balances; (ii) the issuance of 81,000,000 shares of Avalon common stock at a price of $1.21 per share as consideration for acquisition of Senlang; (iii) and acquisition consideration exceeded the fair value of net assets acquired by $97,556,672, which the Company allocated to intangible assets mainly consisting of cell and gene engineering technologies with the ability to generate innovative and transformative cellular immunotherapies for solid and hematologic cancers.

 

Transaction 2:

 

Accumulated deficit   650,000      
Accrued professional fees        650,000 

 

To accrue $650,000 estimated additional legal, accounting, and advisory fees that are payable as a result of the acquisition of Senlang, which were not reflected in either Avalon’s or Senlang’s historical financial statements.

 

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THE ACQUISITION

 

The Background of the Acquisition

 

The terms of the Purchase Agreement are the result of arm’s-length negotiations between representatives of Avalon and Sen Lang. The following is a brief discussion of the background of these negotiations. The following chronology does not purport to catalogue every conversation among Avalon, Sen Lang, and their respective representatives.

 

In the ordinary course of its business, Avalon’s board of directors, with the assistance of its senior management and advisors, regularly reviews the near-term and long-term strategy, performance, positioning, and operating prospects of Avalon with a view toward enhancing stockholder value. These reviews have included, from time to time, potential capital markets transactions and acquisitions, as well as a review of the potential benefits and risks associated with each such course of action.

 

From September 2020 through May 2021, Avalon and its advisors conducted due diligence on Sen Lang (which consists of a group of companies including the operating company SenlangBio, and the BVI company Sen Lang. For simplicity, all Sen Lang group entities are referred to as “Sen Lang”). A financial adviser conducted financial due diligence and delivered its final Financial Due Diligence Report on December 12, 2020. Lowenstein Sandler LLP, counsel to Avalon (“Lowenstein”) conducted limited U.S. intellectual property due diligence and delivered its IP Diligence Summary on April 8, 2021. JunHe, PRC counsel to Avalon (“JunHe”) conducted full legal due diligence and delivered an initial draft of its comprehensive due diligence report on April 12, 2021.

 

On April 19, 2021, Avalon’s board of directors held a telephonic meeting, with representatives from Lowenstein Sandler in attendance, and discussed the terms of the proposed acquisition of Sen Lang.

 

On April 27, 2021, Lowenstein Sandler provided an initial draft of the Purchase Agreement to Avalon, which Avalon provided to Sen Lang.

 

During the months of April and May 2021, Avalon continued its financial, regulatory, intellectual property and business-related review of Sen Lang. JunHe delivered its final due diligence report on May 17, 2021.

 

On May 24, 2021, Sen Lang delivered to Avalon a revised draft of the Purchase Agreement. On May 25, 2021, Lowenstein Sandler provided a further revised draft of the Purchase Agreement to Avalon, which Avalon provided to Sen Lang.

 

On June 1, 2021, Sen Lang delivered to Avalon an initial draft of the Sen Lang Disclosure Schedule to the Purchase Agreement. Avalon and JunHe reviewed and provided comments to the Disclosure Schedule on or about June 4, 2021. Sen Lang delivered a revised draft of the Disclosure Schedule on June 10, 2021, and after receiving further clarifying comments from JunHe, delivered the substantively final draft of the Disclosure Schedule on June 12, 2021.

 

On June 3, 2021, Sen Lang delivered to Avalon a further revised draft of the Purchase Agreement. Lowenstein Sandler delivered the substantively final draft of the Purchase Agreement to Avalon on June 7, 2021, which Avalon provided to Sen Lang.

 

During April through June, management of Avalon held various calls with members of the Board of Avalon to discuss the transactions related to the Purchase Agreement and the Equity Financing and responded to questions from various members of the Board.

 

In connection with the Purchase Agreement, Avalon and Sen Lang also negotiated several ancillary documents. Simultaneous to their entrance into the Purchase Agreement, Avalon and Sen Lang also entered into a Securities Exchange Agreement (“SEA”) and a Capital Increase Agreement (“CIA”) with Yueyin Datong (Tianjin) Asset Management Co. Ltd. (“Yueyin”), pursuant to which Yueyin committed to invest RMB 200,000,000 in SenlangBio in three installments in exchange for its right to convert its investment in SenlangBio, at its option, to Avalon shares or Sen Lang (BVI) shares. Yueyin is an affiliate of IN Capital, a healthcare PE fund active in China. In or about early March 2021, while Avalon was doing due diligence on Sen Lang, Avalon was approached by IN Capital for its interest in investing in SenlangBio simultaneously with Avalon’s acquisition of Sen Lang. Although a draft term sheet was circulated by Avalon as early as mid-March 2021 to IN Capital and after rounds of discussions as to the feasibility of the proposed structure of the investment, the term sheet was never signed. On or about May 12, 2021, Avalon delivered its first draft of SEA and CIA to IN Capital.

 

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On May 25, 2021, Avalon received from IN Capital’s counsel its comments on the SEA and CIA, and held various calls initially with JunHe and Lowenstein, and then with In Capital’s counsel. After intensive discussion and several rounds of revisions in the next week or so with negotiations focusing on mainly the process and formula of securities conversion, a comprehensive draft was sent to IN Capital on or around June 3, 2021. On June 7, 2021, Avalon received comments from IN Capital that it would like to split its investments in SenlangBio into three installments. After this major change and other revisions, the final versions of the SEA and CIA were executed on June 13, 2021.

 

Avalon’s board of directors approved the Purchase Agreement, Securities Exchange Agreement and transactions contemplated thereby on June 13, 2021.

 

On June 24, 2021, the parties signed an Amendment 1 to both the SEA and CIA, to amend certain conversion formulas which would result in a small adjustment to the Investor’s equity percentage in Sen Lang if they exercise their options to convert to Sen Lang shares.

 

Reasons for the Acquisition

 

The Avalon board of directors unanimously (i) determined that the terms and provisions of the Purchase Agreement and the transactions contemplated thereby, including the Acquisition, are fair to, advisable and in the best interests of the Company and its stockholders, (ii) approved the Purchase Agreement and the transactions contemplated thereby, including the Acquisition, (iii) authorized, empowered and directed the Company to perform all of its obligations under the Purchase Agreement and related documents, and (iv) resolved to recommend the adoption of the Purchase Agreement by the stockholders of the Company in compliance with the rules of Nasdaq.

 

In the course of its evaluation of the Acquisition Agreement with Sen Lang, the Avalon Board held numerous meetings, consulted with Avalon’s senior executive management, Avalon’s outside legal counsel and advisors, and reviewed and assessed a significant amount of information, and considered a number of factors, including the following:

 

the Avalon Board’s belief that the acquisition of SenlangBio will significantly enhance Avalon’s capabilities and competitiveness in the cell and gene therapy sector. By adding 15 of SenlangBio’s autologous and universal (“off-the-shelf”) cell therapy candidates, it is expected to enriched Avalon’s R&D and therapeutic portfolio with potential applications to a wide array of hematologic malignancies and solid tumors. The Avalon’s Board believes this transformative acquisition will significantly contribute to sustainable and successful growth and development of Avalon and its business;

 

the Avalon Board’s belief that the acquisition of SenlangBio will result in seamless vertical integration of upstream scientific and technology-based expertise, mid-stream bio-processing and bio-manufacturing capabilities, as well as downstream clinical components in the execution of clinical studies and caring of patients in cell therapy settings. The Avalon Board believes this will enhance Avalon’s ability to offer customers a fully-integrated, end-to-end platform, de-risking and accelerating Avalon’s discovery and development of pre-clinical and clinical programs;

 

the Avalon Board’s consideration that acquisition of SenlangBio will include experienced members from the senior management team of SenlangBio who have expertise in discovery, research and clinical development in the sector of cell and gene therapy, which will be highly valued by potential pharmaceutical and biotechnology partners and will enhance the composition of the Avalon management team;

 

the Avalon Board’s belief that the acquisition of SenlangBio will position Avalon to create partnership engagements with pharmaceutical and biotechnology companies that will yield significant revenue opportunities, based on the technical capabilities and robust assets of cell therapy candidates to be acquired from SenlangBio;

 

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the Avalon Board’s belief that the added scientific and clinical capabilities and merits from the acquisition of SenlangBio will provide the best opportunity to improve upon Avalon’s cash position by attracting investments, as well as driving significant value for shareholders in the years ahead;

 

the historical market prices, volatility and trading information of Avalon Common Stock;

 

the fact that the amount of Acquisition Shares was achieved through a series of arms’ length negotiations between the parties;

 

the recommendation of Avalon’s management in favor of the Acquisition;

 

the terms and conditions of the Acquisition Agreement, including the commitments by Avalon and Sen Lang to complete the Acquisition and the transactions contemplated thereby;

 

the Avalon Board’s belief that, while the consummation of the Acquisition is subject to various regulatory approvals, such approvals were likely to be obtained without a material adverse impact on the respective businesses of Avalon and SenlangBio; and

 

the terms of the proposed Equity Financing related to the Acquisition.

 

The Avalon board of directors considered these advantages and opportunities against a number of other factors identified in its deliberations weighing negatively against the Acquisition, including:

 

  the difficulties of combining the businesses of Avalon and SenlangBio based on, among other things, the different geographical locations and complexities of the two companies, including issues unique to the PRC, and potential disruption associated with the transactions and integrating the companies;
     
  the challenges inherent in the management and operation of the post-Acquisition company, including the risk that integration costs may be greater than anticipated and may require greater than anticipated management attention and focus post-closing;
     
  the risks and costs to Avalon in connection with the Acquisition (including if the Acquisition is not completed), either during the pendency of the Acquisition or following the closing, including the risks and costs associated with the potential diversion of management and employee attention, potential employee attrition and the potential effect on business, operations and financial results;
     
  the potential that the fixed nature of the Acquisition Shares could result in Avalon delivering greater value to the Sen Lang Owners than had been anticipated by Avalon should the value of shares of Avalon Common Stock increase disproportionately from the date of the Acquisition Agreement;
     
  the possibility that the anticipated benefits of the Acquisition may not be realized, recognizing the many challenges associated with successfully integrating the businesses of Avalon and SenlangBio, including the risk of not capturing all of the anticipated cost savings, synergies and operational efficiencies;
     
  the fact that, assuming the consummation of the Acquisition, the dilution to Avalon stockholders as stockholders of the post-Acquisition company due to the issuance of all of the securities to be issued in connection with the Acquisition and the Equity Financing;
     
  the fact that executive officers and directors of Avalon have interests in the Acquisition that may be different from, or in addition to, the interests of Avalon stockholders (please see the section entitled “The Acquisition—Interests of Avalon’s Directors and Officers in the Acquisition”); and
     
  various other risks associated with the Acquisition and the businesses of Avalon, SenlangBio and the post-Acquisition company described in the section entitled “Risk Factors.”

 

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The foregoing discussion of the factors considered by the Avalon Board is not intended to be exhaustive, but rather includes the principal factors considered by the Avalon Board in reaching its conclusion and recommendation in relation to the Acquisition and the Avalon proposals included herein. In view of the wide variety of factors considered in connection with its evaluation of the Acquisition and the complexity of these matters, the Avalon Board did not find it useful and did not attempt to quantify or assign any relative or specific weights to the various factors that it considered in reaching its determination to approve the Acquisition Agreement and to make its recommendations to Avalon’s stockholders. In addition, individual members of the Avalon Board may have given differing weights to different factors. The Avalon board of directors conducted an overall review of the factors described above, including thorough discussions with Avalon’s management and outside legal and financial advisors. In considering the recommendation of the Avalon Board, Avalon’s stockholders should be aware that Avalon’s directors may have interests in the Acquisition that are different from, or in addition to, those of the Avalon stockholders generally. Please see the section entitled “Interests of Avalon Directors and Executive Officers in the Acquisition.”

 

The VIE Structure

 

Neither Sen Lang nor any of its subsidiaries owns any equity interest in SenlangBio. Instead, it controls and receives the economic benefits of SenlangBio’s business operation through a series of contractual arrangements.

 

On April 26, 2021, the PRC Subsidiary, which is indirectly wholly-owned by Sen Lang, entered into a series of contractual arrangements, or VIE Agreements, with SenlangBio and the 13 equity holders of SenlangBio, through which Sen Lang obtained control and became the primary beneficiary of SenlangBio, hereinafter referred to as the Reorganization. As a result, SenlangBio became Sen Lang’s “VIE.”

 

Sen Lang was established as an indirect holding company of the PRC Subsidiary.

 

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The following chart illustrates Sen Lang’s corporate structure, including its subsidiaries, consolidated variable interest entity and VIE’s subsidiary as of June 24, 2021 (the issuance date of Sen Lang’s historical financial statements included herein):

 

 

 

VIE Agreements with SenlangBio

 

Upon the completion of the Reorganization, Sen Lang, through the PRC Subsidiary, entered into the following contractual arrangements with the VIE and the VIE’s 13 shareholders that enabled Sen Lang to (1) have power to direct the activities that most significantly affects the economic performance of the VIE, and (2) receive the economic benefits of the VIE that could be significant to the VIE. Accordingly, the PRC Subsidiary was considered the primary beneficiary of the VIE and had consolidated the VIE and the VIE’s subsidiary’s financial results of operations, assets and liabilities in Sen Lang’s consolidated financial statements.

 

Contracts that give Sen Lang effective control of the VIE

 

Equity Pledge Agreement

 

Under the Equity Pledge Agreement between the PRC Subsidiary, SenlangBio and SenlangBio’s shareholders, SenlangBio’s shareholders agree to pledge all of their equity interests in SenlangBio to the PRC Subsidiary to guarantee the performance of SenlangBio and SenlangBio’s shareholders’ obligations under the Exclusive Technical Consultation and Service Agreement, the Exclusive Purchase Option Agreement, the Shareholder’s Rights Proxy Agreement, and the Spousal Consent (“Transaction Agreements”). Under the terms of the Equity Pledge Agreement, in the event that SenlangBio or SenlangBio’s shareholders breach their respective contractual obligations under the Transaction Agreements or the Equity Pledge Agreement, the PRC Subsidiary, as pledgee, is entitled to directly exercise the pledge right and to notify SenlangBio’s shareholders to immediately repay or pay the loans or other payables under the Transaction Agreements. SenlangBio’s shareholders further agreed not to dispose of the pledged equity interests without prior written consent from the PRC Subsidiary.

 

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The pledge is effective on the date when the registration of the equity pledge is completed with the competent administration for industry and commerce, and the term of validity of the pledge is the same as the longest term of validity in the Transaction Agreements.

 

The purposes of the Equity Pledge Agreement are to (1) guarantee the performance of SenlangBio and SenlangBio’s shareholders’ obligations under the Transaction Agreements, (2) make sure SenlangBio’s shareholders do not transfer or assign the pledged equity interests, or create or allow any encumbrance that would prejudice interests of the PRC Subsidiary without prior written consent from the PRC Subsidiary, and (3) provide the PRC Subsidiary control over SenlangBio.

 

In the event SenlangBio or SenlangBio’s shareholders breaches their contractual obligations under the Transaction Agreements or Equity Pledge Agreement, the PRC Subsidiary will be entitled to (1) be compensated on a preferential basis with the proceeds from the conversion, auction or sale of the pledged equity, and (2) notify SenlangBio’s shareholders to immediately repay the loans or other payables under the Transaction Agreements.

 

Exclusive Purchase Option Agreement

 

Under the Exclusive Purchase Option Agreement, SenlangBio’s shareholders irrevocably grants the PRC Subsidiary (or its designee) an exclusive right to purchase the equity held by SenlangBio’s shareholders in the SenlangBio in whole or in part at any time during the term of the agreement; SenlangBio also irrevocably grants the PRC Subsidiary (or its designee) an exclusive right to purchase the assets owned by SenlangBio in whole or in part at any time during the term of the agreement.

 

With respect to consideration for equity purchase, the PRC Subsidiary has the right to purchase all or part of the equity held by SenlangBio’s shareholders in SenlangBio at the lowest price permitted by the PRC laws. With respect to the price for asset purchase, the PRC Subsidiary has the right to purchase SenlangBio’s assets at a price equivalent of the net book value of the purchased assets; provided that if the minimum price permitted by the PRC law is higher than the net book value, the minimum price permitted by the PRC laws will prevail.

 

Under the Exclusive Purchase Option Agreement, the PRC Subsidiary may purchase all or part of the equity held by SenlangBio’s shareholders in SenlangBio and all or part of the assets owned by SenlangBio at any time to the extent permitted by PRC laws. The Exclusive Purchase Option Agreement, together with the Equity Pledge Agreement, Exclusive Technical Consultation and Service Agreement, and the Proxy Agreement, enable the PRC Subsidiary to exercise effective control over SenlangBio. The Exclusive Purchase Option Agreement remains in effect, unless terminated by the PRC Subsidiary by giving a thirty (30) day advance written notice.

 

Shareholder’s Rights Proxy Agreement

 

Under the Shareholder’s Rights Proxy Agreement, SenlangBio’s shareholders authorize any entity or individual designated by the PRC Subsidiary to act on their behalf as their exclusive agent to exercise all shareholder’s rights under the PRC laws and SenlangBio’s Articles of Association, including but not limited to: (a) to convene, attend and vote on all the matters during shareholders’ meetings; (b) to transfer, pledge or dispose of, or create encumbrance on the equity; (c) to receive dividends; (d) to participate in judicial proceedings or execute legal documents in relation to shareholders’ rights; (e) to appoint legal representatives, directors and officers of SenlangBio; and (f) to enter into contracts and exercise the Exclusive Purchase Option Agreement.

 

The Shareholder’s Rights Proxy Agreement shall remain effective until the earlier of: (a) the date on which SenlangBio’s shareholders are no longer the nominee or actual shareholders of the PRC Subsidiary; (b) the date on which the PRC Subsidiary requests the proxy to be terminated in writing; or (c) the date on which the assets and licenses of SenlangBio have been fully transferred to the PRC Subsidiary.

 

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Contracts that enable Sen Lang to receive substantially all of the economic benefits from the VIE

 

Exclusive Technical Consultation and Service Agreement

 

Pursuant to the Exclusive Technical Consultation and Service Agreement between the PRC Subsidiary and SenlangBio, the PRC Subsidiary provides SenlangBio with technical consultation and services, including conducting market research, assisting with developing management and sales plans, implementing relevant technology application, and providing other consultation services for computer network, finance, business, legal affairs, operation, human resources, and other aspects of SenlangBio. Additionally, the PRC Subsidiary agrees to grant SenlangBio its trademarks, software copyrights, management systems, management methods and other intellectual property in relation to its services on a chargeable and revocable basis, but such grant shall not result in the transfer of any intellectual property or create any restriction on the PRC Subsidiary’s full ownership.

 

For services rendered to SenlangBio under this agreement, the PRC Subsidiary is entitled to collect a service fee calculated based on the complexity of services rendered, time required by the PRC Subsidiary, and the exact contents and commercial value of services rendered. During the term of this agreement, the PRC Subsidiary shall enjoy all the economic benefits derived from SenlangBio’s operations, and in the event of serious difficulties in SenlangBio’s operations, the PRC Subsidiary may provide SenlangBio with financial support, and the PRC Subsidiary has the right to request SenlangBio to cease operation. The Exclusive Technical Consultation and Service Agreement shall remain in effect for ten (10) years and shall be automatically renewed unless it is terminated earlier by the PRC Subsidiary.

 

Based on the foregoing VIE Agreements, the PRC Subsidiary has effective control of SenlangBio which enables the PRC Subsidiary to receive all of the expected residual returns and absorb the expected losses of the VIE and its subsidiary. Sen Lang’s management therefore concluded that Sen Lang, through the above contractual arrangements, has the power to direct the activities that most significantly impact the VIE’s economic performance, bears the risks of and enjoys the rewards normally associated with ownership of the VIE, and therefore Sen Lang is the ultimate primary beneficiary of the VIE. Consequently, Sen Lang consolidates the accounts of SenlangBio and its subsidiary for the periods presented in the financial statements of Sen Lang included in this proxy statement, in accordance with Accounting Standards Codification (“ASC”) 810-10, Consolidation.

 

Interests of Avalon’s Directors and Officers in the Acquisition

 

In considering the recommendation of Avalon’s board of directors with respect to issuing shares of Avalon Common Stock as contemplated by the Purchase Agreement and the other matters to be acted upon by Avalon stockholders at the Avalon annual meeting, Avalon stockholders should be aware that certain members of the board of directors and executive officers of Avalon have interests in the Acquisition that may be different from, or in addition to, the interests of Avalon stockholders. These interests relate to or arise from the matters described below. The board of directors of Avalon was aware of these potential conflicts of interest and considered them, among other matters, in reaching its decision to approve the Purchase Agreement and the transactions contemplated thereby, and to recommend that Avalon stockholders approve the Avalon Proposals to be presented to Avalon stockholders for consideration at the Avalon annual meeting as contemplated by this proxy statement.

 

Continued Service

 

As described elsewhere in this proxy statement, including in the section entitled “Management After the Acquisition,” all of the current executive officers of Avalon will continue in their current positions after the Acquisition, and all of the directors except for Meng Li will continue on the Avalon board after the Acquisition.

 

Stock Ownership

 

As of June 30, 2021, Avalon’s directors and executive officers beneficially owned approximately 66.3% of the shares of Avalon Common Stock (calculated in accordance with SEC rules that define beneficial ownership) and owned 54,145,161 shares, 63.6% of the issued and outstanding Avalon Common Stock on such date. Although under no contractual or other obligation to do so, all of such directors and executive officers are currently expected to vote in favor of all of the Avalon Proposals, including the Nasdaq Proposal.

 

Affiliation with Beijing Lu Daopei Hospital

 

On April 10, 2020, in the ordinary course of business, SenlangBio entered into a scientific research project cooperation agreement with Beijing Lu Daopei Hospital Co., Ltd., under which Beijing Lu Daopei Hospital Co., Ltd. conducts scientific research for the interest of SenlangBio on the cytoplasmic CD79a antibody gated multicolor flow cytometry monitoring CD19-CAR-T bridging allogeneic transplantation for the treatment of refractory and relapsed acute B lymphocytic leukemia. SenlangBio provides research funds in the amount of RMB 2 million to Beijing Lu Daopei Hospital Co., Ltd. Beijing Lu Daopei Hospital Co., Ltd. is a wholly-owned subsidiary of an entity whose chairman is Wenzhao Lu, the Chairman and largest shareholder of Avalon.

 

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Indemnification and Insurance

 

As described in this proxy statement, including in the section entitled “Management After the Acquisition—Limitation on Liability and Indemnification of Directors and Officers,” certain of Avalon’s directors and officers will be entitled to certain ongoing rights of indemnification and coverage under directors’ and officers’ liability insurance policies.

 

The Avalon board of directors was aware of these interests and considered them, among other matters, in its decision to approve the Acquisition.

 

Regulatory Approvals Required for the Acquisition

 

In the United States, Avalon must comply with applicable federal and state securities laws and the rules and regulations of Nasdaq in connection with the issuance of shares of Avalon Common Stock in connection with the Acquisition and the issuance of the Exchange Shares in the Equity Financing and the filing of this proxy statement with the SEC.

 

Accounting Treatment of the Acquisition

 

The Acquisition is expected to be accounted for as a business acquisition, with Avalon identified as the accounting acquirer. Avalon is considered the accounting acquirer since immediately following the closing: (i) Avalon stockholders will own a majority of the voting rights of the post-Acquisition company; (ii) Avalon will have designate a majority (eight of nine) of the initial members of the board of directors of the post-Acquisition company; (iii) Avalon’s senior management will hold the majority of the key positions in senior management of the post-Acquisition company; and (iv) Avalon will continue to maintain its corporate headquarters in Freehold, New Jersey, United States. SenlangBio will continue to maintain operations in the Shijiazhuang High-tech Development Zone, Hebei Province, China.

 

The acquisition consideration is 81,000,000 shares of Avalon Common Stock. The purchase price will be allocated to the acquired assets and assumed liabilities based on their fair values at the closing date, and any excess is initially allocated to identifiable intangible assets mainly consisting of cell and gene engineering technologies with the ability to generate innovative and transformative cellular immunotherapies for solid and hematologic cancers, which will be amortized over 10 years. The initial allocation is subject to change upon the final valuation which is to be done at the time of closing. Such change could have a material impact on Avalon’s financial statements.

 

Appraisal Rights and Dissenters’ Rights

 

No appraisal or dissenters’ rights are available to holders of shares of Avalon Common Stock in connection with the Acquisition.

 

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THE PURCHASE AGREEMENT

 

The following is a summary of the material terms of the Purchase Agreement. A copy of the Purchase Agreement is attached as Annex A to this proxy statement and is incorporated by reference into this proxy statement. The Purchase Agreement has been attached to this proxy statement to provide you with information regarding its terms. It is not intended to provide any other factual information about Avalon, Sen Lang or the other parties thereto. The following description does not purport to be complete and is qualified in its entirety by reference to the Purchase Agreement. You should refer to the full text of the Purchase Agreement for details of the Acquisition and the terms and conditions of the Purchase Agreement.

 

The Purchase Agreement contains representations and warranties that Avalon, on the one hand, and the Sen Lang Owners, on the other hand, have made to one another as of specific dates. These representations and warranties have been made for the benefit of the other parties to the Purchase Agreement and may be intended not as statements of fact but rather as a way of allocating the risk to one of the parties if those statements prove to be incorrect. In addition, the assertions embodied in the representations and warranties are qualified by information in confidential disclosure schedules exchanged by the parties in connection with signing the Purchase Agreement. While Avalon does not believe that these disclosure schedules contain information required to be publicly disclosed under the applicable securities laws, other than information that has already been so disclosed, the disclosure schedules do contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the attached Purchase Agreement. Accordingly, you should not rely on the representations and warranties as current characterizations of factual information about Avalon or the Acquired Companies, because they were made as of specific dates, may be intended merely as a risk allocation mechanism among the parties to the Purchase Agreement and are modified by the disclosure schedules.

 

General

 

On June 13, 2021, Avalon GloboCare Corp., a Delaware corporation (the “Company” or “Avalon”), entered into a Share Purchase Agreement (the “Purchase Agreement”), by and among the Company, Lonlon Biotech Ltd., a company incorporated in the British Virgin Islands (“BVI”) (“Sen Lang”), the holders of the share capital of Sen Lang (the “Sen Lang Shareholders”), the ultimate beneficial owners of the Sen Lang Shareholders (the “Sen Lang Beneficial Shareholders” and, together with the Sen Lang Shareholders, the “Sen Lang Owners”) and a representative of the Sen Lang Owners (the “Sen Lang Representative”). Pursuant to the Purchase Agreement, Avalon agreed to purchase (the “Acquisition”) all of the issued and outstanding share capital of Sen Lang (the “Sen Lang Shares”).

 

Acquisition Consideration

 

The purchase price being paid by Avalon to the Sen Lang Shareholders under the Purchase Agreement for the Sen Lang Shares is an aggregate of 81 million shares (the “Acquisition Shares”) of the common stock, par value US$0.0001 per share, of Avalon (the “Avalon Common Stock”). Ten percent (10%), or 8.1 million, of such shares will be held in escrow for 12 months following the closing to satisfy any indemnification obligations of the Sen Lang Shareholders under the Share Purchase Agreement. The Acquisition Shares will not be registered under the Securities Act of 1933, as amended (the “Securities Act”) and, therefore, will be restricted securities under Rule 144 under the Securities Act for six months or longer after the closing of the Acquisition, subject to “affiliate” status with the Company under the Securities Act.

 

Directors and Executive Officers of the Post-Acquisition company Following the Acquisition

 

Upon the closing of the Acquisition, it is currently expected that Dr. Jianqiang Li, scientific founder and CSO of SenlangBio, will join the board of Avalon, and Dr. Li will also be appointed as Chief Technology Officer of Avalon. In addition, upon the closing the Acquisition, Meng Li, Avalon’s Chief Operating Officer and a director, will resign from her position on the board of Avalon. The Avalon board and management will otherwise remain the same aside from Dr. Li, with Wenzhao Lu (Chairman), David Jin, MD, PhD, Steven A. Sanders, Yancen Lu, Wilbert J. Tauzin II, Willliam B. Stilley, III, Tevi Troy and Yue “Charles” Li continuing to serve on the board and Dr. Jin continuing to serve as President and Chief Executive Officer, Ms. Li as Chief Operating Officer and Luisa Ingargiola as Chief Financial Officer.

 

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Conditions to the Closing of the Acquisition

 

Each party’s obligation to complete the Acquisition is subject to the satisfaction or waiver by each of the parties, at or prior to the closing of the Acquisition (the “Closing”), of various conditions, which include, in addition to other customary closing conditions, the following:

 

  there shall not have been issued any statute, rule, regulation, judgment, decree, injunction or other order prohibiting the Closing by any governmental entity of competent jurisdiction or which would have a material adverse effect on Avalon after the Closing or after giving effect to the Acquisition;

 

  the Nasdaq Proposal shall have been approved by the Avalon stockholders; and

 

  the Acquisition shares shall have been approved for listing (subject to official notice of issuance) on Nasdaq.

 

In addition, the obligation of Avalon to complete the Acquisition is further subject to the satisfaction or waiver of the following conditions, among others set forth in the Purchase Agreement:

 

  certain fundamental representations and warranties of the Acquired Companies shall have been true and correct in all respects on the date of the Purchase Agreement and shall be true and correct on the date of the Closing (the “Closing Date”) of the Acquisition with the same force and effect as if made on and as of the date on which the Acquisition is to be completed or, if such representations and warranties address matters as of a particular date, then such fundamental representations and warranties shall be true and correct as of that particular date;

 

  all other representations and warranties of the Acquired Companies in the Purchase Agreement shall have been true and correct as of the date of the Purchase Agreement and shall be true and correct on the Closing Date of the Acquisition with the same force and effect as if made on the date on which the Acquisition is to be completed or, if such representations and warranties address matters as of a particular date, then such representations and warranties shall be true and correct as of that particular date, except where the failure of these representations and warranties to be true and correct, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Acquired Companies, taken as a whole (a “Sen Lang Material Adverse Effect”);

 

  the Acquired Companies shall have performed or complied with in all material respects all of its covenants and agreements in the Purchase Agreement required to be performed or complied with by it on or before the Closing of the Acquisition;

 

  since the date of the Purchase Agreement, there shall not have occurred any act, event or omission having or reasonably likely to have a Sen Lang Material Adverse Effect;

 

  The Acquired Companies shall have obtained all necessary consents and approvals for the performance of the Purchase Agreement;

 

  The Equity Financing shall have been consummated no later than concurrently with the Closing;

 

  the Acquired Companies shall have delivered certain certificates and other documents required under the Purchase Agreement for the Closing; and

 

  all of the necessary VIE Agreements shall have been executed and delivered to the satisfaction of Avalon.

 

In addition, the obligation of the Acquired Companies and the Sen Lang Owners to complete the Acquisition is further subject to the satisfaction or waiver of the following conditions, among others set forth in the Purchase Agreement:

 

  certain fundamental representations and warranties of Avalon shall have been true and correct in all respects on the date of the Purchase Agreement and shall be true and correct on the Closing Date of the Acquisition with the same force and effect as if made on and as of the date on which the Acquisition is to be completed or, if such representations and warranties address matters as of a particular date, then such fundamental representations and warranties shall be true and correct as of that particular date;

 

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  all other representations and warranties of Avalon in the Purchase Agreement shall have been true and correct as of the date of the Purchase Agreement and shall be true and correct on the Closing Date of the Acquisition with the same force and effect as if made on the date on which the Acquisition is to be completed or, if such representations and warranties address matters as of a particular date, then such representations and warranties shall be true and correct as of that particular date, except where the failure of these representations and warranties to be true and correct, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on Avalon (an “Avalon Material Adverse Effect”);

 

  Avalon shall have performed or complied with in all material respects all of its covenants and agreements in the Purchase Agreement required to be performed or complied with by it on or before the Closing of the Acquisition;

 

  Avalon shall have obtained all necessary consents and approvals for the performance of the Purchase Agreement;

 

  Avalon shall have delivered certain certificates and other documents required under the Purchase Agreement for the Closing of the Acquisition; and

 

  since the date of the Purchase Agreement, there shall not have occurred any act, event or omission having or reasonably likely to have an Avalon Material Adverse Effect.

 

Non-Solicitation

 

In the Purchase Agreement the Acquired Companies agreed not to (i) solicit, initiate, or encourage the submission of any proposal or offer from any person relating to the acquisition of the equity or assets of the Acquired Companies or (ii) enter into or renew any distribution agreement related to the business of the Acquired Companies, in each case without the prior written consent of Avalon.

 

Stockholder Approvals

 

Avalon is obligated under the Purchase Agreement to, as promptly as practicable hold an annual meeting of the holders of Avalon Common Stock to consider and vote to approve the issuance of the Acquisition Shares.

 

Sen Lang is obligated under the Purchase Agreement to obtain any and all necessary approvals of the Sen Lang Owners for the consummation of the Acquisition.

 

Covenants; Conduct of Business Pending the Acquisition

 

The Acquired Companies and the Sen Lang Owners (collectively, the Sen Lang Parties”) have agreed not to:

 

take any action or omit to take any action which would result in any Acquired Company (a) incurring any trade accounts payable outside of the ordinary course of business or making any commitment to purchase quantities of any item of inventory in excess of quantities normally purchased in the ordinary course of business; (b) increasing any of its indebtedness for borrowed money except in the ordinary course of business; (c) guaranteeing the obligations of any entity other than an Acquired Company, (d) making any purchases of pharmaceuticals other than from the manufacturers thereof or wholesalers or other distributors authorized by such manufacturers to distribute their products; (e) merging or consolidating with, purchasing substantially all of the assets of, or otherwise acquiring any business or any proprietorship, firm, association, limited liability company, corporation or other business organization; (f) increasing or decreasing the rate or type of compensation payable to any officer, director, employee or consultant of any Acquired Company (other than regularly scheduled increases in base salary and annual bonuses consistent with prior practice); (g) entering into or amending any collective bargaining agreement, or creating or modifying any pension or profit-sharing plan, bonus, deferred compensation, death benefit, or retirement plan, or any other employee benefit plan, or increasing the level of benefits under any such plan, or extending the exercisability of any outstanding stock option or increasing or decreasing any severance or termination pay benefit or any other fringe benefit; (h) making any representation to anyone indicating any intention of Avalon or its Subsidiaries to retain, institute, or provide any employee benefit plans; (i) declaring or paying any dividend or making any distribution with respect to, or purchasing or redeeming, shares of the capital stock of any Acquired Company; (j) selling, licensing or disposing of any assets otherwise than in the ordinary course of business of the Acquired Companies; (k) making any capital expenditures other than in the ordinary course of business consistent with past practices and in no event in excess of $50,000 in the aggregate; (l) issuing any shares of the capital stock of any kind of any Acquired Company, transferring from the treasury of any Acquired Company any shares of the capital stock of any Acquired Company or issuing or granting any subscriptions, options, rights, warrants, convertible securities or other agreements or commitments to issue, or contracts or any other agreements obligating any Acquired Company to issue, or to transfer from treasury, any shares of capital stock of any class or kind, or securities convertible into any such shares; (m) modifying, amending or terminating any material contract other than in the ordinary course of business that is consistent with past practices; or (n) entering into any other transaction outside of the ordinary course of business;

 

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change any method or principle of accounting in a manner that is inconsistent with past practice, except to the extent required by generally accepted accounting principles as advised by Sen Lang’s regular independent accountants;

 

make, change or revoke any material tax election, fail to pay any income or other material tax as such tax becomes due and payable, file any amendment making any material change to any tax return, settle or compromise any income or other material tax liability, enter into any tax allocation, sharing, indemnification or other similar agreement or arrangement, request or consent to any extension or waiver of any limitation period with respect to any claim or assessment for any income or other material taxes (other than in connection with any extension of time to file any tax return), or adopt or change any accounting method in respect of taxes;

 

take any action that would likely result in the representations and warranties set forth the Purchase Agreement as made by the Sen Lang Parties (other than representations made as of a particular date) becoming false or inaccurate in any material respect (or, as to representations and warranties, which, by their terms, are qualified as to materiality, becoming false or inaccurate in any respect);

 

incur or create any encumbrances, liens, pledges or security interests on assets other than permitted encumbrances;

 

except as contemplated in the Purchase Agreement, take any action or omit to take any action which would materially interfere with Avalon’s rights to compel performance of each of the obligations of Sen Lang under the Purchase Agreement;

 

take or omit to be taken any action, or permit any of its affiliates to take or to omit to take any action, which would reasonably be expected to result in a Sen Lang Material Adverse Effect; or

 

agree or commit to take any action set forth above.

 

Avalon has agreed not to:

 

change any method or principle of accounting in a manner that is inconsistent with past practice, except to the extent required by generally accepted accounting principles as advised by Avalon’s regular independent accountants;

 

take any action that would likely result in the representations and warranties set forth in the Purchase Agreement as made by Avalon (other than representations made as of a particular date) becoming false or inaccurate in any material respect (or, as to representations and warranties, which, by their terms, are qualified as to materiality, becoming false or inaccurate in any respect);

 

except as contemplated in the Purchase Agreement, take any action or omit to take any action which would materially interfere with Sen Lang’s rights to compel performance of each of the obligations of Avalon under the Purchase Agreement;

 

take or omit to be taken any action, or permit any of its affiliates to take or to omit to take any action, which would reasonably be expected to result in an Avalon Material Adverse Effect;

 

amend Avalon’s certificate of incorporation or by-laws, each as amended, in any material manner that does not generally apply to all of Avalon’s stockholders; or

 

agree or commit to take any action set forth above.

 

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Other Agreements

 

Each of Avalon and the Sen Lang Parties has agreed to use its commercially reasonable efforts to, among other things:

 

  cause this proxy statement to comply with the rules and regulations promulgated by the SEC, to respond promptly to any comments of the SEC or its staff and to clear this proxy statement with the SEC as promptly as practicable after it is filed with the SEC;

 

  satisfy the conditions precedent to the consummation of the transactions contemplated by the Purchase Agreement; and

 

  provide the other party with reasonable access to such party’s personnel and assets and to all existing books, records, tax returns, work papers and other documents and information relating to such party and its subsidiaries.

 

Indemnification

 

The Sen Lang Owners agreed to indemnify Avalon and its affiliates from any damages arising from any breach, inaccuracy or nonfulfillment or the alleged breach, inaccuracy or nonfulfillment of any of the representations, warranties and covenants of Sen Lang and the Sen Lang Owners contained in the Purchase Agreement or from the VIE Agreements not being found valid or enforceable. The indemnification obligations are capped at the value of approximately 8,100,000 of the Acquisition Shares that will be held in escrow, except for claims related to fraud and certain fundamental representations, in which case the obligations are capped at the amount of the Acquisition Shares actually paid by Avalon to the indemnifying party.

 

Termination of the Purchase Agreement

The Purchase Agreement may be terminated and/or abandoned at any time prior to the closing, whether before or after approval of the proposals being presented to Avalon’s stockholders, under certain circumstances, including by:

 

the Sen Lang Representative if the Board of Directors of Avalon shall withdraw, modify or change the Company Board Recommendation in a manner adverse to the Sen Lang Owners;

 

either Avalon or the Sen Lang Representative if at the Avalon Annual Meeting (as defined above) the requisite vote of Avalon’s stockholders to authorize the issuance of the Acquisition Shares in the Acquisition in accordance with the rules of Nasdaq shall not have been obtained;

 

Avalon if any authorization, consent, waiver or approval required for the consummation of the Acquisition shall require the divestiture or cessation of any of the present business or operations conducted by Avalon or its subsidiaries or any Acquired Company or shall impose any other material condition or requirement, which divestiture, cessation, condition or requirement, in the reasonable judgment of Avalon’s Board of Directors, would be reasonably likely to have an Avalon Material Adverse Effect after the Closing giving effect to consummation of the Acquisition; and

 

either Avalon or the Sen Lang Representative if the closing has not occurred by December 31, 2021.

 

Amendment

 

No amendment of any provision of the Purchase Agreement shall be valid unless the same shall be in writing and signed by Avalon and the Sen Lang Representative.

 

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THE EQUITY FINANCING

 

In connection with the Acquisition, on June 13, 2021, an institutional investor (the “Investor”) entered into an agreement, as amended on June 24, 2021, with SenlangBio related to the purchase of registered capital of SenlangBio (the “OpCo Capital Increase Agreement”) pursuant to which the Investor will acquire an aggregate of up to 13.5% of the equity ownership of SenlangBio for an aggregate purchase price (the “Subscription Amount) of approximately US$30,000,000 (represented by an actual investment of RMB200,000,000) (the “Equity Financing”), which funds will be invested in SenlangBio in three equal installments of approximately US$10,000,000 (represented by actual installments of RMB67,000,000, RMB67,000,000 and RMB66,000,000), at a fixed price, the first to be upon the closing of the Acquisition, the second to be within three months after the closing and the third to be within six months after the closing. In addition, pursuant to a Securities Exchange Agreement, as amended on June 24, 2021 (the “Exchange Agreement”), by and among the Company, Sen Lang, SenlangBio and the Investor, dated June 13, 2021, the Investor shall have the right, exercisable between the six-month and five year-anniversaries of the respective initial closing and installment closings, to elect to exchange, from time to time, all or part of its then-owned equity ownership of SenlangBio for shares (the “Exchange Shares”) of Avalon Common Stock at a fixed exchange price of US$1.21 per share of Avalon Common Stock, which was the market price of the Avalon Common Stock as of the date of the Exchange Agreement under Nasdaq rules. In addition, the Exchange Agreement provides that the Investor may only exchange up to 10% of its total investment amount in any 30 day period.

 

The Investor is entitled to receive a number of Exchange Shares equal to the portion of the Subscription Amount (which is measured in RMB) being exchanged (i) converted into US dollars at the RMB exchange rate on the date of the exchange notice and (ii) divided by the exchange price of $1.21. Such exchange price will be adjusted to reflect any stock split, reclassification, combination or other similar change of Avalon Common Stock.

 

In addition, between the six-month and five year-anniversaries of the respective initial closing and installment closings, the Investor shall have the right to elect to exchange, from time to time, all or part of its then-owned equity ownership of SenlangBio for shares of Sen Lang by taking the portion of the Subscription Amount (which is measured in RMB) being exchanged and (i) converting it into US dollars at the RMB exchange rate on the date of the exchange notice and (ii) dividing it by the fixed exchange price of $20,014.4918 per share of Sen Lang, subject to adjustment for any stock split, reclassification, combination or other similar change.

 

The conditions to the initial closing include the material accuracy of representations and warranties contained in the Exchange Agreement and the OpCo Capital Increase Agreement, that performance of all applicable covenants and agreements by the parties, the consummation of the Acquisition, the execution by the Investor of the VIE Agreements, the approval of the issuance of the Exchange Shares by the Avalon stockholders pursuant to the Nasdaq Proposal and the approval of the listing of the Exchange Shares on Nasdaq, subject to official notice of issuance.

 

Avalon has no plans, and is under no obligation, to register the Exchange Shares under the Securities Act, and, therefore, such shares will be restricted securities under Rule 144 under the Securities Act.

 

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PROPOSAL NO. 1—THE DIRECTOR ELECTION PROPOSAL

 

At the annual meeting, the Avalon Board of Directors proposes that the nominees listed below be elected to hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified. All of the nominees are currently serving as directors. All nominees have consented to being named in this proxy statement and to serve if elected. As described above, it is currently anticipated that upon the closing of the Acquisition, Meng Li, Avalon’s Chief Operating Officer and a director, will resign from her position on the board of Avalon.

 

Assuming a quorum is present, the nine nominees receiving the highest number of affirmative votes of shares entitled to be voted for such persons will be elected as directors of Avalon to hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified. Unless marked otherwise, proxies received will be voted “FOR” the election of the nominees named below. In the event that additional persons are nominated for election as directors, the proxy holders intend to vote all proxies received by them in such a manner as will ensure the election of the nominees listed below, and, in such event, the specific nominees to be voted for will be determined by the proxy holders.

 

Information With Respect to Director Nominees

 

Listed below are the nominees for election to the Avalon Board with information showing the principal occupation or employment of the nominees for director, the principal business of the corporation or other organization in which such occupation or employment is carried on, and such nominees’ business experience during the past five years. Such information has been furnished to Avalon by the director nominees.

 

Name   Age   Position
         
Wenzhao “Daniel” Lu   63   Chairman of the Board of Directors
         
David Jin, MD, PhD   53   Chief Executive Officer, President and Director
         
Meng Li   43   Chief Operating Officer, Secretary and Director
         
Steven A. Sanders   75   Director
         
Yancen Lu   46   Director
         
Wilbert J. Tauzin II   76   Director
         
William B. Stilley, III   53   Director
         
Tevi Troy   53   Director
         
Yue “Charles” Li   47   Director

 

The principal occupation and business experience during at least the past five years for the directors is as follows:

 

Wenzhao “Daniel” Lu, Chairman of the Board of Directors

 

Mr. Wenzhao Lu is Avalon’s Chairman of the Board. He is a seasoned healthcare entrepreneur with extensive operational knowledge and experience in China. He has been serving as Chairman of the Board for the Daopei Medical Group, or DPMG, since 2010. Under his leadership, DPMG has recently expanded its clinical network involving a state-of-the-art stem cell bank at Wuhan Biolake, three top-ranked private hospitals (located in Beijing, Shanghai, and Hebei), specialty hematology laboratories, as well as a hematology research institute, with more than 100 partnering and collaborating hospitals in China. DPMG was founded by Professor Daopei Lu, a renowned hematologist pioneering in hematopoietic stem cell transplant and member of the Academy of Engineering in China. Mr. Wenzhao Lu received a Bachelor of Arts from Temple University Tyler School of Arts in 1988 and subsequently worked as senior Art Director at Ogilvy & Mather Advertising Company. Prior to joining DPMG, Mr. Lu served as Chief Operating Officer for BioTime Asia Limited, which is a subsidiary of BioTime, Inc. (NYSE American: BTX) in 2009. Mr. Lu is qualified to serve as a director because of his extensive operational knowledge of, and executive level management experience in, the healthcare industry.

  

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David Jin, Chief Executive Officer, President and Director

 

Dr. David Jin, MD, PhD, is Avalon’s Chief Executive Officer, President and a member of the Board of Directors. From 2009 to 2017, Dr. Jin has served as the Chief Medical Officer of BioTime, Inc. (NYSE American: BTX), a clinical stage regenerative medicine company with a focus on pluripotent stem cell technology. Dr. Jin also acts as a senior translational clinician-scientist at the Howard Hughes Medical Institute and the Ansary Stem Cell Center at Weill Cornell Medical College of Cornell University. Prior to his current endeavors, Dr. Jin was Chief Consultant/Advisor for various biotech/pharmaceutical companies regarding hematology, oncology, immunotherapy and stem cell-based technology development. Dr. Jin has been Principle Investigator in more than 15 pre-clinical and clinical trials, as well as author/co-author of over 80 peer-reviewed scientific abstracts, articles, reviews, and book chapters. Dr. Jin studied medicine at SUNY Downstate College of Medicine in Brooklyn, New York. He received his clinical training and subsequent faculty tenure at the New York-Presbyterian Hospital (the teaching hospital for both Cornell and Columbia Universities) in the areas of internal medicine, hematology, and clinical oncology. Dr. Jin was honored as Top Chief Medical Officer by ExecRank in 2012, as well as recognized by Leading Physicians of the World in 2015. Dr. Jin is qualified to serve as a director because of his role with Avalon and his extensive operational knowledge of, and executive level management experience in, the healthcare industry.

 

Meng Li, Chief Operating Officer, Secretary and Director

 

Ms. Meng Li is Avalon’s Chief Operating Officer and Secretary and a member of the Board of Directors. Previously, Ms. Li served on the Board of Directors from October 2017 through July 2018 and was re-appointed in February 2019. Ms. Li has over 15 years of executive experience in international marketing, branding, communications, and media investment consultancy. Ms. Li served as Managing Director at Maxus/GroupM (a WPP Group company) where she was responsible for business P&L and corporate management from 2006 to 2015. Prior to joining Maxus/Group M, Ms. Li worked for Zenith Media (a Publicis Group company) from 2000 to 2006 as Senior Manager. Ms. Li received a Bachelor of Arts in International Economic Law from Dalian Maritime University in China. Ms. Li is qualified to serve as a director because of her role with Avalon and her executive level management experience.

 

Upon the closing of the Acquisition, it is expected that Ms. Li will resign from her position on the board of Avalon, and Dr. Jianqiang Li will be appointed to the board.

 

Steven A. Sanders, Director

 

Steven A. Sanders is a member of the Board of Directors. Since January 2017, Mr. Sanders has been Of Counsel to the law firm of Ortoli Rosenstadt LLP. From July 2007 until January 2017, Mr. Sanders was a Senior Partner of Ortoli Rosenstadt LLP. From January 1, 2004 until June 30, 2007, he was Of Counsel to the law firm of Rubin, Bailin, Ortoli, LLP. From January 1, 2001 to December 31, 2003, he was Counsel to the law firm of Spitzer & Feldman PC. Mr. Sanders also serves as a Director of Helijet International, Inc. and Electrameccanica Vehicles Corp. (NASDAQ:SOLO). Additionally, he has been a director at the American Academy of Dramatic Arts since October 2013 and has been a director of the Bay Street Theater since February 2015. Mr. Sanders received his JD from Cornell University and his BBA from The City College of New York. Mr. Sanders is qualified to serve as a director because of his corporate, securities and international law experience, including working with companies in the life sciences industry.

 

Yancen Lu, Director

 

Yancen Lu is a member of the Board of Directors. Mr. Lu has more than 20 years of experience in investment banking and equity investment management. He is the Founder and CEO of PagodaTree Partners, a healthcare PE fund. Before this, Mr. Lu was the Managing Director of FountainVest Partners. In addition to his professionalism in securities, investment and capital management, Mr. Lu has a special focus and comprehensive understanding of the global medical and healthcare industry. He served as Director of leading healthcare corporations including Sino Hospital Investment Corporation (Hong Kong), Chang’an Hospital (the largest private hospital in Northwest China), and DIH Medical Technologies. Mr. Lu received Bachelor’s and Master’s degrees in Engineering Economics from Tianjin University. Mr. Lu is qualified to serve as a director because of his extensive operational knowledge of, and executive level management experience in, the healthcare industry.

 

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Wilbert J. Tauzin II, Director

 

Wilbert J. Tauzin II is a member of the Board of Directors. From December 2010 until March 1, 2014, Congressman Tauzin served as Special Legislative Counsel to Alston & Bird LLP. From December 2004 to June 2010, Congressman Tauzin was President and Chief Executive Officer of the Pharmaceutical Research and Manufacturers of America, a trade group that serves as one of the pharmaceutical industry’s top lobbying groups. He served 12.5 terms in the U.S. House of Representatives, representing Louisiana’s 3rd Congressional District. From January 2001 through February 2004, Congressman Tauzin served as Chairman of the House Committee on Energy and Commerce. He also served as a senior member of the House Resources Committee and Deputy Majority Whip. Prior to serving as a member of Congress, Congressman Tauzin was a member of the Louisiana State Legislature, where he served as Chairman of the House Natural Resources Committee and Chief Administration Floor Leader. He currently serves as lead independent director of LHC Group, a publicly traded provider of quality home health care. Congressman Tauzin received a Bachelor of Arts Degree from Nicholls State University and a Juris Doctor degree from Louisiana State University. Congressman Tauzin is qualified to serve as a director because of his extensive knowledge of the pharmaceutical industry and his experience as a director of several publicly-traded and privately-held companies.

 

William B. Stilley, III, Director

 

William B. Stilley is a member of the Board of Directors. Mr. Stilley has been the chief executive officer and member of the board of directors of Adial Pharmaceuticals, Inc. since December 2010. From August 2008 until December 2010, he was the vice president, business development and strategic projects at Clinical Data, Inc. (NASDQ: CLDA). From February 2002, Mr. Stilley was the COO and CFO of Adenosine Therapeutics, LLC until certain assets of Adenosine Therapeutics were acquired by Clinical Data, Inc. in August 2008. Mr. Stilley has advised both public and private companies on financing and M&A transactions, has been the interim CFO of a public company, the interim Chief Business Officer and then Advisor for Diffusion Pharmaceuticals from September 2015 through March 2018, and the COO and CFO of a number of private companies. Before entering the business community, Mr. Stilley served as Captain in the U.S. Marine Corps. Mr. Stilley has an MBA with honors from the Darden School of Business and a B.S. in Commerce/Marketing from the McIntire School of Commerce at the University of Virginia. He currently serves on the Advisory Board of Virginia BIO, the statewide biotechnology organization. Mr. Stilley is qualified to serve as a director because of his extensive knowledge of the biotechnology industry, significant executive leadership and operational experience, and knowledge of, and experience in, financing and M&A transactions. 

 

Tevi Troy, Director

 

Tevi Troy is a member of the Board of Directors and a former Deputy Secretary of the U.S. Department of Health and Human Services.  Dr. Troy has previously been the founder and CEO of the American Health Policy Institute and a Senior Fellow at Hudson Institute, where he remains an Adjunct Fellow. On August 3, 2007, Dr. Troy was unanimously confirmed by the U.S. Senate as the Deputy Secretary of  HHS. As Deputy Secretary, Dr. Troy was the chief operating officer of the largest civilian department in the federal government, with a budget of $716 billion and over 67,000 employees. Dr. Troy has extensive White House experience, having served in several high-level positions over a five-year period, culminating in his service as Deputy Assistant and then Acting Assistant to the President for Domestic Policy. Dr. Troy has held high-level positions on Capitol Hill as well. From 1998 to 2000, Dr. Troy served as the Policy Director for Senator John Ashcroft. From 1996 to 1998, Dr. Troy was Senior Domestic Policy Adviser and later Domestic Policy Director for the House Policy Committee, chaired by Christopher Cox. In addition to his senior level government work and health care expertise, Dr. Troy is also a best-selling presidential historian and the author of five books, including, most recently, "Fight House: Rivalries in the White House from Truman to Trump," which the Wall Street Journal listed as one of the top political books of 2020. Dr. Troy’s many other affiliations include: contributing editor for Washingtonian magazine; member of the publication committee of National Affairs; member of the Board of Fellows of the Jewish Policy Center; a Senior Fellow at the Potomac Institute; and a member of the Bipartisan Commission on Biodefense. Dr. Troy has a B.S. in Industrial and Labor Relations from Cornell University and an M.A and Ph.D. in American Civilization from the University of Texas at Austin. Dr. Troy is qualified to serve as a director because of his extensive knowledge of the healthcare industry and his significant leadership experience.

 

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Yue “Charles” Li

 

Yue “Charles” Li is a member of the Board of Directors. Mr. Li has about 20 years of experience in M&A and capital markets in China and the U.S. Mr. Li currently is a Managing Director at PagodaTree Partners, a private equity company with a focus on healthcare in Beijing. Prior to PagodaTree, he was a senior executive at a major conglomerate in China where he successfully closed $2 billion M&A transactions in healthcare and insurance areas. Previously, Mr. Li spent 8 years in Deloitte, as a director of financial advisory services in Beijing and capital markets in New York. His key clients included Merrill Lynch, Blackrock, KKR etc. In his early career, Mr. Li served for top tier financial institutions such as Credit Suisse and Fannie Mae, responsible for asset allocation strategy and risk management for multibillion USD portfolios. Mr. Li received Master’s degree from the Olin School of Business at Washington University in 2000 and a Bachelor of Engineering from Tianjin University in 1996. He is a CFA charter holder. Mr. Li is qualified to serve as a director because of his extensive investment and executive level management experience.

 

Required Vote

 

The election of the directors of the Company requires the affirmative vote of a plurality of the shares of the Company’s common stock present or represented by proxy at the annual meeting, which will be the nominees receiving the largest number of votes, which may or may not constitute a majority.

 

AVALON’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ITS STOCKHOLDERS VOTE “FOR” THE ELECTION OF THE DIRECTORS SET FORTH IN THE DIRECTOR ELECTION PROPOSAL.

 

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PROPOSAL NO. 2—THE AUDITOR PROPOSAL

 

The audit committee of Avalon’s board of directors has appointed Marcum LLP (“Marcum”) as the Company’s independent registered public accounting firm to audit its consolidated financial statements for the fiscal years ending December 31, 2021. At the annual meeting, stockholders will be asked to ratify the appointment of Marcum as the Company’s independent registered public accounting firm for the year ending December 31, 2021. Stockholder ratification of the appointment of the independent registered public accounting firm is not required by the Company’s bylaws or other applicable legal requirements. However, Avalon’s board of directors submits the appointment of Marcum to stockholders for ratification as a matter of good corporate governance. If this appointment is not ratified by the affirmative vote of the holders of a majority of votes cast by the stockholders present in person or represented by proxy and entitled to vote thereon at the annual meeting, the appointment will be reconsidered by our audit committee. Even if the appointment is ratified, Avalon’s audit committee, in its sole discretion, may appoint another independent registered public accounting firm at any time during the fiscal year ending December 31, 2021 if the audit committee believes that such a change would be in the best interests of the Company and its stockholders. A representative of Marcum is expected to be present at the Annual Meeting, will have an opportunity to make a statement if he or she wishes to do so, and is expected to be available to respond to appropriate questions from stockholders.

 

Fees Paid to Independent Registered Public Accounting Firm  

 

Marcum served as Avalon’s independent auditors for the years ended December 31, 2020 and 2019. Aggregate fees billed to the Company for professional services rendered by Marcum during the last two fiscal years were as follows:

 

   December 31,
2020
   December 31,
2019
 
Audit Fees  $252,144   $186,669 
Audit Related Fees   -    - 
Tax Fees   15,450    2,575 
All Other Fees   -    - 
Totals  $267,594   $189,244 

 

AUDIT FEES. Consists of fees billed for professional services rendered for the audit of the Company’s annual consolidated financial statements, review of the Form 10-K, and review of the interim consolidated financial statements included in quarterly reports, and services that are normally provided by the Company’s independent auditors in connection with statutory and regulatory filings or engagements, including registration statements.

 

AUDIT-RELATED FEES. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit and or review of the Company’s consolidated financial statements and are not reported under “Audit Fees”, such as audits and reviews in connection with acquisitions.

 

TAX FEES. Consists of fees billed for professional services for tax compliance, tax advice and tax planning.

 

ALL OTHER FEES. Consists of fees for products and services other than the services reported above. There were no management consulting services provided in fiscal 2020 or 2019.

 

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POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS

 

The current policy of the directors, acting as the audit committee, is to approve the appointment of the principal auditing firm and any permissible audit-related services. The audit and audit related fees include fees for the annual audit of the financial statements and review of financial statements included in 10Q filings. Fees charged by the auditor were approved by the Board with engagement letters signed by the audit committee chairman.

 

The Audit Committee is responsible for the pre-approval of audit and permitted non-audit services to be performed by the Company’s independent auditor. The Audit Committee will, on an annual basis, consider and, if appropriate, approve the provision of audit and non-audit services by the auditor. Thereafter, the Audit Committee will, as necessary, consider and, if appropriate, approve the provision of additional audit and non-audit services by the auditor which are not encompassed by the Audit Committee’s annual pre-approval and are not prohibited by law. The Audit Committee has delegated to the Chair of the Audit Committee the authority to pre-approve, on a case-by-case basis, non-audit services to be performed by the auditor. The Audit Committee has approved all audit and permitted non-audit services performed by the auditor for the year ended December 31, 2020. 

 

Vote Required for Approval

 

The approval of the Auditor Proposal requires the affirmative vote of the holders of a majority of votes cast by the stockholders present in person or represented by proxy and entitled to vote thereon at the annual meeting. Accordingly, abstentions and broker non-votes, if any, will have no effect on the outcome of the Auditor Proposal.

 

AVALON’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ITS STOCKHOLDERS

VOTE “FOR” THE AUDITOR PROPOSAL.

 

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PROPOSAL NO. 3—THE NASDAQ PROPOSAL

 

Acquisition Shares

 

Pursuant to the terms of the Purchase Agreement, at the Closing, Avalon will issue an aggregate of 81,000,000 shares of Avalon Common Stock to the Sen Lang Shareholders. The shares of Avalon Common Stock issuable to the Sen Lang Shareholders are referred to as the “Acquisition Shares.” The number of Acquisition Shares issuable is subject to appropriate adjustment upon any pre-Closing stock dividend, distribution, stock split, reclassification, combination or other change with respect to shares of Avalon Common Stock effected by Avalon.

 

For more information about the Acquisition and the issuance of the Acquisition Shares, please see the sections entitled “The Acquisition” and “The Purchase Agreement—Acquisition Consideration”, and the full text of the Purchase Agreement included as Annex A hereto.

 

Exchange Shares

 

In connection with and as a condition to the Closing of the Acquisition, Avalon is required to consummate the Equity Financing. Pursuant to the terms of the Exchange Agreement, the Investor shall have the right, exercisable between the six-month and five year-anniversaries of the respective initial closing and installment closings, to elect to exchange, from time to time, all or part of its then-owned equity ownership of SenlangBio for the Exchange Shares at a fixed exchange price of US$1.21 per share of Avalon Common Stock, which was the market price of the Avalon Common Stock as of the date of the Exchange Agreement under Nasdaq rules, or an aggregate of approximately 25,885,000 shares of Avalon Common Stock (based on the consummation of all of the installments of the Equity Financing and utilizing the conversion rate of US dollars to RMB of 6.3856 as of June 11, 2021). The actual number of shares to be issued under the Exchange Agreement may vary due to changes in the RMB exchange rate at the time of an exchange notice.

 

For more information about the Equity Financing and the issuance of the Exchange Shares, please see the section entitled “The Equity Financing”.

 

Approval of the Issuance of the Acquisition Shares and the Exchange Shares

 

The issuance of the Acquisition Shares and the Exchange Shares is expected to result in an issuance comprising more than 20% of the outstanding common stock of Avalon, or more than 20% of the voting power, in each case outstanding before the issuance. The Avalon board of directors is requesting stockholder approval of Proposal 1 to comply with Nasdaq Listing Rules 5635(a) and 5635(d), as applicable.

 

Vote Required for Approval

 

The approval of the Nasdaq Proposal requires the affirmative vote of the holders of a majority of votes cast by the stockholders present in person or represented by proxy and entitled to vote thereon at the annual meeting. Accordingly, abstentions and broker non-votes, if any, will have no effect on the outcome of the Nasdaq Proposal.

 

The Acquisition is conditioned on the approval of the Nasdaq Proposal.

 

AVALON’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ITS STOCKHOLDERS VOTE “FOR” THE ISSUANCE OF THE ACQUISITION SHARES AND THE EXCHANGE SHARES AS SET FORTH IN THE NASDAQ PROPOSAL.

 

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PROPOSAL NO. 4—THE ADJOURNMENT PROPOSAL

 

If Avalon fails to receive a sufficient number of votes to approve the Nasdaq Proposal, Avalon may propose to adjourn the Avalon annual meeting for the purpose of soliciting additional proxies to approve the Nasdaq Proposal. Avalon currently does not intend to propose adjournment at the Avalon annual meeting if there are sufficient votes to approve the Nasdaq Proposal.

 

If on the date of the Avalon annual meeting, or a date preceding the date on which the Avalon annual meeting is scheduled, Avalon reasonably believes that (i) it will not receive proxies sufficient to obtain the required vote to approve Proposal 1, whether or not a quorum would be present or (ii) it will not have sufficient shares of Avalon Common Stock represented (whether in person or by proxy) to constitute a quorum necessary to conduct the business of the Avalon annual meeting, Avalon may postpone or adjourn, or make one or more successive postponements or adjournments of, the Avalon annual meeting as long as the date of the Avalon annual meeting is not postponed or adjourned more than an aggregate of 30 calendar days in connection with any postponements or adjournments.

 

Vote Required for Approval

 

The approval of the Adjournment Proposal requires the affirmative vote of the holders of a majority of votes cast by the stockholders present in person or represented by proxy and entitled to vote thereon at the annual meeting. Accordingly, abstentions and broker non-votes, if any, will have no effect on the outcome of the Adjournment Proposal.

 

Adoption of the Adjournment Proposal is not conditioned upon the adoption of any of the other proposals.

 

AVALON’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ITS STOCKHOLDERS

VOTE “FOR” THE APPROVAL OF THE ADJOURNMENT PROPOSAL.

 

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INFORMATION ABOUT SENLANGBIO

 

Overview

 

SenlangBio is a clinical-stage biotechnology company that focuses on three advanced technology platforms—CAR T-cells, CAR γδT-cells and armTILs—to develop a robust pipeline of innovative and transformative cellular immunotherapies for cancer patients. Chimeric antigen receptor (CAR) T-cells (CAR-T) are natural cell-killing T-cells that have been engineered to specifically recognize and kill cancerous cells. Allogeneic (universal) CAR γδT-cells (CAR-GDT) are a specific class of donor-derived T-cells that can provide superior anti-tumor effectiveness. Armored tumor infiltrating lymphocytes (armTILs) are cancer-killing T-cells that provide a unique “personalized” cellular immunotherapy approach.

 

SenlangBio is currently the largest cell therapy company in Northern China in terms of the scale of bio-manufacturing, as well as the breadth and depth of active pre-clinical research and clinical development programs.

 

SenlangBio is currently gathering clinical trial data through in-human “investigator-initiated” clinical trials, which are conducted by SenlangBio in cooperation with several hospitals in China. To date, over 300 patients have received 15 of SenlangBio’s cellular immunotherapies through these early-stage clinical studies at 13 hospitals and medical centers, covering 9 medical indications. Such clinical trials have been designed to fully comply with the same requirements applicable to clinical trials registered with China’s National Medical Product Administration (NMPA), in particular the requirements related to manufacturing quality control, informed consent, data integrity, data management, and GCP requirements.

 

SenlangBio was formed in 2016 in Hebei Province, China. The principal executive offices of SenlangBio are located at Room 512 and 513, Building 1, 136 Yellow River Avenue, Shijiazhuang High-tech Development Zone, Hebei Province, China, and its telephone number is +86-311-82970975.

 

Drug Candidate Pipeline

 

Candidates in the Clinical (Investigator Initiated) Development Stage:

 

  Senl_1904B: Autologous anti-CD19 CAR-T for relapsed or refractory (R/R) B-cell lymphoblastic leukemia (B-ALL);
     
  Senl_B19: Autologous anti-CD19 CAR-T for R/R non-Hodgkin’s lymphoma (NHL);
     
  Senl_H19: Autologous anti-CD19 CAR-T for post CAR-T relapsed B-ALL and NHL;
     
  Senl_NS7CAR: Autologous anti-CD7 CAR-T for T-cell ALL and T-cell lymphoblastic lymphoma (T-LBL);
     
  Senl_H19x22P: Autologous, dual Anti-CD19 and anti-CD22 CAR-T for R/R B-ALL and NHL

 

Candidates in the Preclinical/IND Enabling Stage:

 

  Senl_ABUCAR7: Universal anti-CD7 CAR-T for R/R T-ALL and T-LBL;
     
  Senl_GDUCARxxx (undisclosed target): Universal CAR-GDT for R/R acute myeloid leukemia (AML) and myelodysplastic syndrome (MDS);
     
  Senl_GDSTCLDxx (undisclosed target): Universal CAR-GDT for certain types of solid tumors;
     
  Senl_BCMA03: Autologous, anti-BCMA CAR-T for R/R multiple myeloma (MM);
     
  Senl_comboCARs (Senl_TAAx22P): Autologous, combo/customized anti-tumor associated antigen (TAA) and anti-CD22/PD-L1 CAR-T for sarcomas, ovarian cancer and other solid tumors;
     
  Senl_armTILs: Autologous, “armored” tumor infiltrating lymphocytes for solid tumors

 

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CAR-T Cell Therapy Platform

 

SenlangBio’s CAR-T cell therapy portfolio consists of multiple autologous and allogeneic (“off-the-shelf”) candidates with single targets as well as “cocktail” combinations. Currently, SenlangBio’s autologous CAR-T candidates have demonstrated positive remission rates in early clinical studies against R/R B-ALL, T-cell ALL (T-ALL), NHL and T-LBL with a well-tolerated adverse effect profile.

 

Lead Clinical Candidates in Development

 

Senl_1904B, SenlangBio’s lead clinical stage candidate, is an autologous anti-CD19 CAR-T, in development for R/R B-ALL and NHL. This CAR-T design has the potential to reduce the risk of cytokine release syndrome (CRS and CAR-related encephalopathy syndrome (CRES) frequent with the current first generation of CAR-T therapies yet retains robust anti-leukemia/lymphoma activities. Senl_1904B has demonstrated a 97.2% (35/36) complete remission rate and only a 5.6% (2/36) Grade 3 CRS among R/R B-ALL and NHL patients in a successfully completed principal investigator (PI)-initiated, open-label, first-in-human clinical trial. SenlangBio has recently received approval by the Chinese Center for Drug Evaluation (CDE), a division of the NMPA, of the company’s Investigational New Drug (IND) application to initiate a new Phase I clinical trial in R/R B-ALL during 3Q2021.

 

Senl_NS7CAR is an autologous anti-CD7 CAR-T candidate in development for R/R T-ALL and T-LBL. A successfully completed PI-initiated, open-label, first-in-human clinical trial demonstrated that 8 of 8 T-ALL and T-LBL patients achieved complete remission and none developed greater than Grade 2 CRS. SenlangBio plans to file an IND application with the CDE during 3Q2021 and will start an official Phase I clinical trial upon approval of the IND application.

 

Senl_H19x22P is an autologous dual CAR-T candidate at the clinical development stage for R/R B-ALL and NHL. This CAR-T cell therapy candidate contains a cocktail of H19 CAR modified T cells and 22P CAR modified T cells. Generally, CAR-T cell therapy targeting CD19 has demonstrated promising success rates, however, a high rate of disease relapse remains a hurdle to overcome. An investigator-initiated trial demonstrated technical feasibility, high activity and low toxicities of the Senl_H19x22P CAR-T cell cocktail in treating B-ALL patients who relapsed after treatment with a CD19 CAR-T therapy containing murine single-chain variable fragment (scFv) (FMC63). So far, in a cohort of 7 patients who relapsed after FMC63-CAR therapy and were subsequently infused in an open-label trial with Senl_H19x22P CAR-T cocktails, 6 of them (85.7%) achieved MRD-negative complete remission (CR) within the first month of cell infusion. No patients developed CAR-T related serious (greater than grade-2) toxicities of CRS or CRES. SenlangBio plans to file an IND application with the CDE during 4Q2021 and will start an official Phase I clinical trial upon approval of the IND application.

 

Select Candidates in Preclinical Development

 

CAR-gdT cell-therapy candidates:

 

  Universal/allogeneic (“off-the-shelf”) cell therapy modality
     
  Potentially breakthrough treatment for relapsed and refractory acute myeloid leukemia (AML) and myelodysplastic syndrome (MDS)
     
  Targeting multiple solid tumor malignancies, including pancreatic, gastric, ovarian, sarcomas, and others
     
  Successfully completed pre-clinical, IND-enabling stage and currently in preparation to initiate first-in-human clinical trials

 

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Senl_comboCARs are autologous CAR-T candidates customized in design with a combination of anti-tumor associated antigen (anti-TAA) CAR and anti-CD22/PD-L1 CAR. The gene construct is designed to simultaneously express two different CAR structures. The scFv of the first CAR structure can potentially recognize specific tumor-associated antigens, and the scFv of the second CAR structure can potentially target CD22. SenlangBio believes this strategy can enhance the proliferation of CAR-T cells in peripheral blood to ensure more CAR-T cells reaching the tumor locations. The CAR structure targeted to the tumor cell surface is designed to kill tumor cells. Additionally, the combinatorial CAR structure also includes a soluble scFv derived from an anti-PD-L1 monoclonal antibody, which is designed to overcome immunosuppression by blocking the PD-1/PD-L1 pathway. Based on the expression of different tumor associated antigens, scFv (TAA) can potentially be customized and replaced to target individual solid tumors. Currently, SenlangBio has designed and developed a series of comboCAR constructs consisting of individual and/or combinations of tumor-associated antigens which may potentially overcome the current shortage and limitation of CAR-T cell therapies for treatment of solid tumors.

 

CAR-GDT (CAR-γδT) Cell Therapy Platform

 

Universal/allogeneic (“off-the-shelf”) cell therapy modality and potentially breakthough therapy for difficult to treat R/R acute myeloid leukemia (AML) and myelodysplastic syndrome (MDS). Therapeutic candidates are also targeting difficult to treat solid tumor malignancies, including pancreatic, gastric, and ovarian cancers as well as sarcomas, all of which represent a major unmet need among oncology patients. Several of the candidates have successfully completed the pre-clinical, IND-enabling stage, and SenlangBio is currently in preparation to initiate 3-4 PI-initiated first-in-human clinical trials targeting AML, MDS and solid tumors in 4Q2021.

 

SenlangBio Clinical Laboratory Business

 

SenlangBio Clinical Laboratory, a wholly owned subsidiary of SenlangBio that provides third-party clinical testing services, including 1) general biochemical, genomic and proteomic testing; and 2) cell therapy related testing such as hematology, immunology, cancer biomarkers, immuno-phenotyping, and others.

 

Strengths

 

By leveraging unique core technology platforms and rapid research-to-clinical translation capabilities, SenlangBio seeks to develop a profile of cell therapy candidates with the following features of differentiating competence:

 

  Diverse pipeline (“autologous” + “universal”) candidates with potentially potent and durable cancer-killing activities (hematologic + solid tumor malignancies)
     
  High tolerability and established safety profile in clinical trials to date
     
  Provide therapies for novel oncogenic indications that are unmet by the current generation of cellular immunotherapies
     
  Accelerated research-to-clinical translation potentially enabling widespread patient accessibility and broader commercial adoption

 

SenlangBio Management

 

Jianqiang Li, Ph.D., Scientific Founder, CSO, Director

 

Jianqiang Li has over 20 years of academic and industry experience in immunology and cell therapy. Dr. Li has published 13 papers in top-ranked journals, including Nature Medicine, Blood, and the Journal of Immunology, with a cumulative impact index over 60. Dr. Li is an invited speaker at ASH, ASBMT, ICBS, ECI and Gamma-Delta T Cell International Conference. Dr. Li independently set up an efficient CAR-T production system, achieved major breakthroughs in the development and clinical application of allogeneic CAR γδT-cell therapy, and made important contributions to the antigen presentation and activation mechanism of Vγ9Vδ2 T-cells. He has successfully developed CAR-γδ T-cell products derived from human cord blood. Dr. Li has a Master of Immunology from the Institute of Basic Medicine, Peking Union Medical College (2003-2006), a Doctor of Immunology from the University of Würzburg (2006-2009), was a Postdoctoral Fellow at the City of Hope National Medical Center (2010) and was a Senior Scientist in the R&D Department at Fred Hutchinson Cancer Research Center (2011-2016), before founding SenlangBio.

 

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Shengmin Guo, Co-founder, CEO, Director

 

Shengmin Guo has over 20 years of experience in the pharmaceutical industry. Previously, Ms. Guo worked at CSPC NBP Pharmaceutical Co. Ltd (HKEX: 01093), accumulating 12 years of marketing and management experience as Marketing Director, Deputy Manager and Vice President, and 10 years as Senior Manager of Human Resources. Ms. Guo led the development and commercialization of a novel drug launch.

 

Facilities and Manufacturing

 

SenlangBio’s main scientific facility covers a total area of around 5,000m2. Among which, roughly, (1) 1,600m2 is used for production of T-cells, which are solely used for the purpose of clinical trials, (2) 800m2 is used for R&D activities, (3) 800m2 is used for testing services (by SenlangBio Clinical Laboratory), (4) 800m2 is used for office use and (5) 800m2 is used for storage and other purposes.

 

SenlangBio’s GMP bio-manufacturing facility has the capacity and capability to produce:

 

  5 autologous CAR-T production lines with an estimated annual output of 5,000 unit doses; and
     
  2 universal CAR-γδT production lines with an estimated annual output of 10,000 unit doses.

 

Suppliers and Raw Materials

 

SenlangBio has in-house research and production capabilities for lentiviral vectors, plasmids, T-cell cultures, validation bio-assays, as well as QA/QC processes. Raw materials and supplies are related to basic molecular biology and cell culture reagents and materials, which are generally and readily available globally. Raw materials and supplies used by SenlangBio Clinical Laboratory are also generally and readily available globally.

 

Competition

 

The competitive landscape includes companies that are engaging in cell and gene therapies. Considering the CAR-T field, some notable competitors (in similar size and scale of business) include (but not limited to) Gracell Biotechnologies (NASDAQ: GRCL), Legend Biotech Corporation (NASDAQ: LEGN), and Poseida Therapeutics, Inc. (NASDAQ: PSTX). For CAR-gdT cell therapy field, some notable companies include (but not limited to) Adicet Bio Inc. (NASDAQ: ACET), Incysus Therapeutics, Inc and GammaDelta Therapeutics.

 

SenlangBio’s Advantages over Competitors

 

SenlangBio provides a total solution approach in the CellTech industry sector with the seamless integration of innovative research, process development, standardization, validation, quality assessment/quality control, bio-manufacturing and clinical development, and therefore aims to accelerate the translation of technology to clinical application as well as lower overall manufacturing costs.

 

SenlangBio possesses a diverse and broad repertoire of pipeline candidates covering solid and hematologic malignancies; including both autologous and universal (“off-the-shelf”) cell therapy candidates.

 

SenlangBio’s proprietary in vitro expansion protocol for gamma-delta T cells is a critical technology breakthrough with an over 5,000-fold increase in yield, enabling the industrial scale generation of CAR-GDT cells for clinical development. 

 

SenlangBio has applied its promoter technology to regulate the cell surface density of CAR molecules, leading to the reduction of therapy-related toxicities. Seng_1904B, SenlangBio’s lead cell-therapy candidate for relapsed/refractory B-cell acute lymphoblastic leukemia, is driven by the MND promoter, which has demonstrated a superior safety profile in first-in-human investigator initiated clinical trials.

 

While conventional CAR-T therapy is limited to B-cell malignancies, SenlangBio’s technology platform targets the full spectrum of blood cancers, including both B-cell and T-cell malignancies.  SenlangBio’s Seng_NS7CAR candidate has demonstrated positive activities in first in first-in-human investigator initiated clinical trials for treatment of relapsed/refractory T-cell lymphoblastic leukemia (T-ALL) and T-cell acute lymphoblastic lymphoma (T-LBL).

 

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Employees

 

As of June 30, 2021, SenlangBio had 128 employees, among which 104 employees work for SenlangBio and 24 employees work for SenlangBio Clinical Laboratory.

 

Government Regulation

 

Currently, all of SenlangBio’s development work is being conducted in China. China has a dual-track regulatory pathway for conducting T-cell therapy clinical trials. The first track is approval for a health care-affiliated clinical study managed by the National Health Commission, China’s primary healthcare regulatory agency (the “NHC”) (the “IIT Pathway”). The other pathway is to register as a biological drug which requires an IND, a registered clinical trial and NDA approval by the Center for Drug Evaluation (CDE), a subdivision of China’s National Medical Product Administration (NMPA) prior to commercialization (the “Drug Pathway”).

  

1.IIT Pathway

 

IIT stands for investigator-initiated clinical trials, where such trials are initiated and conducted under the oversight of the NHC as a medical practice technology, rather than the NMPA as a medical product. The NMPA, generally speaking, will accept, review, and reject or approve an IND application only from the manufacturer of the investigational product as the sponsor of the IND, rather than from a physician who intends to be the investigator and sponsor of the IND. The NMPA distinguishes the former as a registered clinical trial (namely the clinical trial introduced in the section of “Drug Pathway”), and the latter as a non-registered clinical trial, and normally will not consider the data generated from investigator-initiated, non-registered clinical trials when it reviews the application for a registered clinical trial from the manufacturer.

 

In the case of CAR-T therapy, however, the NMPA is aware of the large number of investigator-initiated non-registered clinical trials in China and the United States, and some reviewers from the CDE have published two articles on its website in February 2018 and October 2018 expressing the view that (1) the mainstream regulatory oversight is to follow the pathway of registered clinical trials, but that (2) data from investigator-initiated non-registered clinical trials may be considered if the non-registered clinical trials otherwise fully comply with the same requirements applicable to registered clinical trials, in particular the requirements related to manufacturing quality control, informed consent, data integrity, data management, and all GCP requirements.

 

In March 2019, a Draft Somatic Cell Therapy Clinical Research and the Transformation Application Management Measures was released by the NHC, which stipulated, among others, that after filing with the NHC, hospitals may use somatic cell therapy treatment and charge patients. However, so far such measures do not come into effect, and any medical institutions or biotech companies which choose the IIT Pathway to conduct T-cell therapy shall be regulated as a clinical study within medical institutions and the IIT Pathway shall not be utilized for the purpose of commercialization.

 

In addition, sponsors taking the IIT Pathway need to complete the filing of the IIT with the competent NHC branch and obtain ethics review approval for the related clinical trials.

 

2.Drug Pathway

 

Pursuant to PRC law, human cell therapy and its products are categorized as biological products and the application for biological products shall be submitted as part of the process of a new drug application.

 

On November 30, 2017, the NMPA promulgated the Notice of Guidelines for Acceptance and Examination of Drug Registration (Trial), which provides that the application for clinical trials of therapeutic biological products and the production and listing application for therapeutic biological products shall be subject to the provisions thereof. On December 18, 2017, the NMPA promulgated the Technical Guiding Principles for Research and Evaluation of Cell Therapy Products (Trial), which sets out the guidelines for medical study, non-clinical research and clinical research of cell therapy products.

 

As for the medical study of cell therapy, the general principle is that the medical studies and quality control of cell therapy shall take into account the fact that cells are capable of living in a body, multiplying and/or differentiating. At the same time, cell therapy products should meet the general requirements of drug quality management, and the whole production process of clinical samples should meet the basic principles and relevant requirements of the Good Manufacturing Practice for Drugs, or the GMP Regulations, published by the Ministry of Health on December 28, 1992 and further amended on January 17, 2011.

 

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According to the Technical Guiding Principles for Cell Therapy Products, non-clinical research shall follow the following principles:

 

  (a) the research and evaluation of different products should follow the principle of a “case by case analysis” while at the same time, the Guidelines for the Preclinical Safety Evaluation of Biotechnology-Derived Pharmaceuticals issued by the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use should serve as a reference for the evaluation of non-clinical research of cell therapy products;
     

 

  (b) non-clinical study evaluation trials should use cell therapy products intended for clinical trials whenever possible. The production process and quality control of a subject used in a non-clinical trial shall be consistent with that of the subject to be used in a clinical trial (if not, the subject shall be explained and its effect on the prediction of human response shall be assessed);
     

 

  (c) non-clinical study evaluation should be conducted by selecting suitable species of animals whose biological response to cell therapy products is close to or similar to the expected human response. In some cases, alternatives to animal sources may also be used for evaluation;
     

 

  (d) in non-clinical study evaluation, the administration of cell therapy products should be able to maximize the simulation of the proposed clinical administration. If clinical administration cannot be simulated in animal studies, alternative administration methods should be identified in pre-clinical studies and their scientific and rational nature should be clarified; and
     

 

  (e) subject analysis data should be provided.

 

As for clinical trials, the Technical Guiding Principles for Cell Therapy Products stipulate that when cell therapy products enter clinical trials, they should follow the requirements of the GCP. In principle, the research contents of clinical trials should include a clinical safety evaluation, pharmacokinetics study, pharmacodynamics study, dose exploration study and confirmatory clinical trials. According to the product nature of different cell therapy products, the specific test design can be adjusted as appropriate.

 

On 13 March 2018, the CDE promulgated the Key Considerations in Applying for Clinical Trials of Cell Therapy Products for Pharmaceutical Research and Application Data to encourage the innovation of cell therapy products in view of the urgent need of such drugs. The document provides guidance on the preparation of pharmaceutical research and application materials in the application phase of clinical trials, according to which, on the basis of following the requirements of technical guidelines for carrying out relevant research, the applicant should pay special attention to certain considerations of pharmaceutical research and application materials, including production of raw materials, production process, quality studies, and stability studies. On the basis of the Technical Guiding Principles for Cell Therapy Products, on 18 October 2019, the CDE promulgated the Pharmaceutical Research Questions and Answers for Application of Cell Therapy Products for Clinical Trials (Issue One) to provide further reference for applicants on the common problems in the review and communication of IND application data of cell therapy products. On February 10, 2021, the CDE published the Technical Guidelines for Clinical Trials of Immunocell Therapy Products, the guidelines provide necessary technical guidance for the overall planning, design, implementation, and data analysis of cellular immune treatment (including CAR-T) products to carry out clinical trials, to reduce certain risks of the participating subjects in clinical trials and to regulate the evaluation method of the safety and effectiveness of such treatment. The guidelines are not mandatory.

 

Given the uniqueness of CAR-T and human cell therapies and that the regulatory pathway for such therapies is still evolving, standardization for CAR-T therapies is difficult to achieve and therefore approval would be assessed on a case-by-case basis.

 

Intellectual Property

 

SenlangBio currently protects its intellectual property and commercial exclusivity through a combination of Chinese patents, trade secrets, trademarks and copyright. SenlangBio currently owns a total of ten Chinese patents (including two inventions and eight utility models) and five Chinese patents applications (including three invention applications and two utility model applications), as well as eight software copyrights and two trademarks. What follows is a summary of relevant intellectual property laws and principles in China.

 

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(1)Patents

 

Pursuant to the PRC Patent Law, most recently amended in October 2020 (the amendment is implemented on June 1, 2021), and its implementation rules, most recently amended in January 2010, patents in China fall into three categories: invention, utility model and design. An invention patent is granted to a new technical solution proposed in respect of a product or method or an improvement of a product or method. A utility model is granted to a new technical solution that is practicable for application and proposed in respect of the shape, structure (or a combination of both) of a product. A design patent is granted to a new design of a certain product in shape, pattern (or a combination of both) and in color, shape and pattern combinations aesthetically suitable for industrial application. Under the PRC Patent Law, the term of patent protection starts from the date of application. Patents relating to invention are effective for twenty years, and utility model and design patents are effective for ten years from the date of application. The PRC Patent Law adopts the principle of “first-to-file” system, which provides that where more than one person files a patent application for the same invention, a patent will be granted to the person who first files the application.

 

Existing patents can be narrowed, invalidated or unenforceable due to a variety of grounds, including lack of novelty, creativity, and deficiencies in patent application. In China, a patent must have novelty, creativity and practical applicability. Under the PRC Patent Law, novelty means that before a patent application is filed, no identical invention or utility model has been publicly disclosed in any publication in China or overseas or has been publicly used or made known to the public by any other means, whether in or outside of China, nor has any other person filed with the patent authority an application that describes an identical invention or utility model and is recorded in patent application documents or patent documents published after the filing date. Creativity means that, compared with existing technology, an invention has prominent substantial features and represents notable progress, and a utility model has substantial features and represents any progress. Practical applicability means an invention or utility model can be manufactured or used and may produce positive results. Patents in China are filed with the State Intellectual Property Office, or SIPO. Normally, the SIPO publishes an application for an invention patent within 18 months after the filing date, which may be shortened at the request of applicant. The applicant must apply to the SIPO for a substantive examination within three years from the date of application.

 

The PRC Patent Law provides that, for an invention or utility model completed in China, any applicant (not limited to Chinese companies and individuals), before filing a patent application outside of China, must first submit it to the SIPO for a confidential examination. Failure to comply with this requirement will result in the denial of any Chinese patent for the relevant invention. This added requirement of confidential examination by the SIPO has raised concerns by foreign companies that conduct research and development activities in China or outsource research and development activities to service providers in China.

 

(2)Trade Secrets

 

According to the PRC Anti-Unfair Competition Law, the term “trade secrets” refers to technical and business information that is unknown to the public, has utility and may create business interests or profits for its legal owners or holders, and is maintained as a secret by its legal owners or holders. Trade secret requirements under the current framework in China is still under development and not robust.

 

Under the PRC Anti-Unfair Competition Law, which was promulgated on September 2, 1993 and was latest amended on April 23, 2019, business persons are prohibited from infringing others’ trade secrets by: (1) acquiring a trade secret from the right holder by theft, bribery, fraud, coercion, electronic intrusion, or any other illicit means; (2) disclosing, using, or allowing another person to use a trade secret acquired from the right holder by any means as specified in the item (1) above; (3) disclosing, using, or allowing another person to use a trade secret in its possession, in violation of its confidentiality obligation or the requirements of the right holder for keeping the trade secret confidential; (4) abetting a person, or tempting, or aiding a person into or in acquiring, disclosing, using, or allowing another person to use the trade secret of the right holder in violation of his or her non-disclosure obligation or the requirements of the right holder for keeping the trade secret confidential. If a third party knows or should have known that an employee or former employee of the right owner of trade secrets or any other entity or individual conducts any of the illegal acts listed above, but still accepts, publishes, uses or allows any other to use such secrets, this practice will be deemed as an infringement of trade secrets. A party whose trade secrets are being misappropriated may petition for administrative corrections, and regulatory authorities may stop any illegal activities and fine infringing parties in the amount of RMB100,000 to RMB1,000,000, and where the circumstance is serious, the fine will be RMB500,000 to RMB5,000,000. Alternatively, persons whose trade secrets are being misappropriated may file lawsuits in a Chinese court for loss and damages incurred due to the misappropriation.

 

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The measures to protect trade secrets include oral or written non-disclosure agreements or other reasonable measures to require the employees of, or persons in business contact with, legal owners or holders to keep trade secrets confidential. Once the legal owners or holders have asked others to keep trade secrets confidential and have adopted reasonable protection measures, the requested persons bear the responsibility for keeping the trade secrets confidential.

 

(3)Trademarks

 

Pursuant to the Trademark Law of the PRC promulgated by the Standing Committee of the NPC on August 23, 1982 and last amended on April 23, 2019, which amendment became effective from November 1, 2019, the period of validity for a registered trademark is ten years, commencing from the date of registration. The registrant shall go through the formalities for renewal within twelve months prior to the expiry date of the trademark if continued use is intended. Where the registrant fails to do so, a grace period of six months may be granted. The validity period for each renewal of registration is ten years commencing from the day immediately after the expiry of the preceding period of validity for the trademark. In the absence of a renewal upon expiry, the registered trademark shall be canceled. Industrial and commercial administrative authorities have the authority to investigate any behavior in infringement of the exclusive right under a registered trademark in accordance with the law. In case of a suspected criminal offense, the case shall be timely referred to a judicial authority and decided according to the law.

 

(4)Copyright

 

Pursuant to the Copyright Law of the PRC, effective in June 1, 1991 and most recently amended in November 2020 (the amendment was implemented on June 1, 2021), copyrights include personal rights such as the right of publication and that of attribution as well as property rights such as the rights of production and distribution. Reproducing, distributing, performing, projecting, broadcasting or compiling a work or communicating the same to the public via an information network without permission from the owner of the copyright therein, unless otherwise provided in the Copyright Law of the PRC, constitutes infringements of copyrights. The infringer must, according to the circumstances of the case, undertake to cease the infringement, take remedial action, and offer an apology or pay damages.

 

Pursuant to the Computer Software Copyright Protection Regulations promulgated on December 20, 2001 and last amended on January 30, 2013, a software copyright owner may complete registration formalities with a software registration authority recognized by the State Council’s copyright administrative department. A software copyright owner may authorize others to exercise that copyright, and is entitled to receive remuneration.

 

The VIE Structure

 

Neither Sen Lang nor any of its subsidiaries owns any equity interest in SenlangBio. Instead, it controls and receives the economic benefits of SenlangBio’s business operation through a series of contractual arrangements.

 

On April 26, 2021, the PRC Subsidiary, which is indirectly wholly-owned by Sen Lang, entered into a series of contractual arrangements, or VIE Agreements, with SenlangBio and the 13 equity holders of SenlangBio, through which Sen Lang obtained control and became the primary beneficiary of SenlangBio, hereinafter referred to as the Reorganization. As a result, SenlangBio became Sen Lang’s “VIE.”

 

Sen Lang was established as an indirect holding company of the PRC Subsidiary.

 

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The following chart illustrates Sen Lang’s corporate structure, including its subsidiaries, consolidated variable interest entity and VIE’s subsidiary as of June 24, 2021 (the issuance date of Sen Lang’s historical financial statements included herein):

 

 

 

VIE Agreements with SenlangBio

 

Upon the completion of the Reorganization, Sen Lang, through the PRC Subsidiary, entered into the following contractual arrangements with the VIE and the VIE’s 13 shareholders that enabled Sen Lang to (1) have power to direct the activities that most significantly affects the economic performance of the VIE, and (2) receive the economic benefits of the VIE that could be significant to the VIE. Accordingly, the PRC Subsidiary was considered the primary beneficiary of the VIE and had consolidated the VIE and the VIE’s subsidiary’s financial results of operations, assets and liabilities in Sen Lang’s consolidated financial statements.

 

Contracts that give Sen Lang effective control of the VIE

 

Equity Pledge Agreement

 

Under the Equity Pledge Agreement between the PRC Subsidiary, SenlangBio and SenlangBio’s shareholders, SenlangBio’s shareholders agree to pledge all of their equity interests in SenlangBio to the PRC Subsidiary to guarantee the performance of SenlangBio and SenlangBio’s shareholders’ obligations under the Exclusive Technical Consultation and Service Agreement, the Exclusive Purchase Option Agreement, the Shareholder’s Rights Proxy Agreement, and the Spousal Consent (“Transaction Agreements”). Under the terms of the Equity Pledge Agreement, in the event that SenlangBio or SenlangBio’s shareholders breach their respective contractual obligations under the Transaction Agreements or the Equity Pledge Agreement, the PRC Subsidiary, as pledgee, is entitled to directly exercise the pledge right and to notify SenlangBio’s shareholders to immediately repay or pay the loans or other payables under the Transaction Agreements. SenlangBio’s shareholders further agreed not to dispose of the pledged equity interests without prior written consent from the PRC Subsidiary.

 

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The pledge is effective on the date when the registration of the equity pledge is completed with the competent administration for industry and commerce, and the term of validity of the pledge is the same as the longest term of validity in the Transaction Agreements.

 

The purposes of the Equity Pledge Agreement are to (1) guarantee the performance of SenlangBio and SenlangBio’s shareholders’ obligations under the Transaction Agreements, (2) make sure SenlangBio’s shareholders do not transfer or assign the pledged equity interests, or create or allow any encumbrance that would prejudice interests of the PRC Subsidiary without prior written consent from the PRC Subsidiary, and (3) provide the PRC Subsidiary control over SenlangBio.

 

In the event SenlangBio or SenlangBio’s shareholders breaches their contractual obligations under the Transaction Agreements or Equity Pledge Agreement, the PRC Subsidiary will be entitled to (1) be compensated on a preferential basis with the proceeds from the conversion, auction or sale of the pledged equity, and (2) notify SenlangBio’s shareholders to immediately repay the loans or other payables under the Transaction Agreements.

 

Exclusive Purchase Option Agreement

 

Under the Exclusive Purchase Option Agreement, SenlangBio’s shareholders irrevocably grants the PRC Subsidiary (or its designee) an exclusive right to purchase the equity held by SenlangBio’s shareholders in the SenlangBio in whole or in part at any time during the term of the agreement; SenlangBio also irrevocably grants the PRC Subsidiary (or its designee) an exclusive right to purchase the assets owned by SenlangBio in whole or in part at any time during the term of the agreement.

 

With respect to consideration for equity purchase, the PRC Subsidiary has the right to purchase all or part of the equity held by SenlangBio’s shareholders in SenlangBio at the lowest price permitted by the PRC laws. With respect to the price for asset purchase, the PRC Subsidiary has the right to purchase SenlangBio’s assets at a price equivalent of the net book value of the purchased assets; provided that if the minimum price permitted by the PRC law is higher than the net book value, the minimum price permitted by the PRC laws will prevail.

 

Under the Exclusive Purchase Option Agreement, the PRC Subsidiary may purchase all or part of the equity held by SenlangBio’s shareholders in SenlangBio and all or part of the assets owned by SenlangBio at any time to the extent permitted by PRC laws. The Exclusive Purchase Option Agreement, together with the Equity Pledge Agreement, Exclusive Technical Consultation and Service Agreement, and the Proxy Agreement, enable the PRC Subsidiary to exercise effective control over SenlangBio. The Exclusive Purchase Option Agreement remains in effect, unless terminated by the PRC Subsidiary by giving a thirty (30) day advance written notice.

 

Shareholder’s Rights Proxy Agreement

 

Under the Shareholder’s Rights Proxy Agreement, SenlangBio’s shareholders authorize any entity or individual designated by the PRC Subsidiary to act on their behalf as their exclusive agent to exercise all shareholder’s rights under the PRC laws and SenlangBio’s Articles of Association, including but not limited to: (a) to convene, attend and vote on all the matters during shareholders’ meetings; (b) to transfer, pledge or dispose of, or create encumbrance on the equity; (c) to receive dividends; (d) to participate in judicial proceedings or execute legal documents in relation to shareholders’ rights; (e) to appoint legal representatives, directors and officers of SenlangBio; and (f) to enter into contracts and exercise the Exclusive Purchase Option Agreement.

 

The Shareholder’s Rights Proxy Agreement shall remain effective until the earlier of: (a) the date on which SenlangBio’s shareholders are no longer the nominee or actual shareholders of the PRC Subsidiary; (b) the date on which the PRC Subsidiary requests the proxy to be terminated in writing; or (c) the date on which the assets and licenses of SenlangBio have been fully transferred to the PRC Subsidiary.

 

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Contracts that enable Sen Lang to receive substantially all of the economic benefits from the VIE

 

Exclusive Technical Consultation and Service Agreement

 

Pursuant to the Exclusive Technical Consultation and Service Agreement between the PRC Subsidiary and SenlangBio, the PRC Subsidiary provides SenlangBio with technical consultation and services, including conducting market research, assisting with developing management and sales plans, implementing relevant technology application, and providing other consultation services for computer network, finance, business, legal affairs, operation, human resources, and other aspects of SenlangBio. Additionally, the PRC Subsidiary agrees to grant SenlangBio its trademarks, software copyrights, management systems, management methods and other intellectual property in relation to its services on a chargeable and revocable basis, but such grant shall not result in the transfer of any intellectual property or create any restriction on the PRC Subsidiary’s full ownership.

 

For services rendered to SenlangBio under this agreement, the PRC Subsidiary is entitled to collect a service fee calculated based on the complexity of services rendered, time required by the PRC Subsidiary, and the exact contents and commercial value of services rendered. During the term of this agreement, the PRC Subsidiary shall enjoy all the economic benefits derived from SenlangBio’s operations, and in the event of serious difficulties in SenlangBio’s operations, the PRC Subsidiary may provide SenlangBio with financial support, and the PRC Subsidiary has the right to request SenlangBio to cease operation. The Exclusive Technical Consultation and Service Agreement shall remain in effect for ten (10) years and shall be automatically renewed unless it is terminated earlier by the PRC Subsidiary.

 

Based on the foregoing VIE Agreements, the PRC Subsidiary has effective control of SenlangBio which enables the PRC Subsidiary to receive all of the expected residual returns and absorb the expected losses of the VIE and its subsidiary. Sen Lang’s management therefore concluded that Sen Lang, through the above contractual arrangements, has the power to direct the activities that most significantly impact the VIE’s economic performance, bears the risks of and enjoys the rewards normally associated with ownership of the VIE, and therefore Sen Lang is the ultimate primary beneficiary of the VIE. Consequently, Sen Lang consolidates the accounts of SenlangBio and its subsidiary for the periods presented in the financial statements of Sen Lang included in this proxy statement, in accordance with Accounting Standards Codification (“ASC”) 810-10, Consolidation.

 

Legal Matters

 

SenlangBio is not currently subject to any material legal proceedings; however, SenlangBio may from time to time become a party to various legal proceedings arising in the ordinary course of its business.

 

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SEN LANG MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of financial condition and results of operations should be read together with Sen Lang’s financial statements and related notes included elsewhere in this proxy statement. This discussion of Sen Lang’s financial condition and results of operations contains certain statements that are not strictly historical and are “forward-looking” statements and involve a high degree of risk and uncertainty. Actual results may differ materially from those projected in the forward-looking statements due to other risks and uncertainties that exist in Sen Lang’s operations, development efforts and business environment, including those set forth in the section titled “Risk Factors” in this proxy statement and the other risks and uncertainties described elsewhere in this proxy statement. All forward-looking statements included in this proxy statement involve risks and uncertainties, are based on information available to Sen Lang as of the date indicated, and Sen Lang assumes no obligation to update any such forward-looking statement. All references in this section to “Sen Lang,” the “Company,” “we,” “us,” or “our” mean Lonlon Biotech Ltd., unless we state otherwise, or the context otherwise indicates.

 

Impact of COVID-19 on our Operations, Financial Condition, Liquidity and Results of Operations

 

The ultimate impact of the COVID-19 pandemic on our operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or us, may determine are needed.

 

The occurrence of an uncontrollable event such as the COVID-19 pandemic could negatively impact our operations even though the pandemic did not significantly impact our operation in 2020. However, given the dynamic nature of these circumstances, the uncertainty around the potential resurgence of the COVID-19 cases in China, and the instability of local policies and restrictions, the COVID-19 impact over our business in the year of 2021 cannot be reasonably estimated at this time. If COVID-19 cases resurged in the area we conducted our business and local government implemented new restrictions in the effort to contain the spread, it is expected our business will be negatively impacted.

 

Overview

 

Lonlon Biotech Ltd. (“Sen Lang” or the “Company”) is a clinical-stage biotechnology company that focuses on three advanced technology platforms—CAR T-cells, CAR γδT-cells and armTILs—to develop a robust pipeline of innovative and transformative cellular immunotherapies for cancer patients. Chimeric antigen receptor (CAR) T-cells (CAR-T) are natural cell-killing T-cells that have been engineered to specifically recognize and kill cancerous cells. Allogeneic (universal) CAR γδT-cells (CAR-GDT) are a specific class of donor-derived T-cells that can provide superior anti-tumor effectiveness. Armored tumor infiltrating lymphocytes (armTILs) are cancer-killing T-cells that provide a unique “personalized” cellular immunotherapy approach.

 

The Company is currently the largest cell therapy company in Northern China in terms of the scale of bio-manufacturing, as well as the breadth and depth of active pre-clinical research and clinical development programs.

 

The Company is currently gathering clinical trial data through in-human “investigator-initiated” clinical trials, which are conducted by it in cooperation with several hospitals in China. To date, over 300 patients have received 15 of its cellular immunotherapies through these early-stage clinical studies at 13 hospitals and medical centers, covering 9 medica